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A Study of the Impact of Fiscal Vertical Imbalances on Manufacturing Upgrading

In: Proceedings of the 2025 10th International Conference on Social Sciences and Economic Development (ICSSED 2025)

Author

Listed:
  • Hui Zou

    (Nanjing Agricultural University, College of Economics and Management)

Abstract

Manufacturing is central to the development of China’s real economy, while fiscal policy serves as a key tool for macroeconomic regulation by central and local governments. Adjustments in fiscal revenues and expenditures play a critical role in driving the transformation and upgrading of the manufacturing sector. Using panel data from 30 Chinese provinces (including municipalities and autonomous regions) from 2003 to 2020, this study employs a two-way fixed-effects model to examine the impact of fiscal vertical imbalance on manufacturing upgrading. The findings reveal that fiscal vertical imbalance significantly hinders manufacturing upgrading through two mechanisms: suppressing fiscal expenditure bias, which negatively affects upgrading, and intensifying local government tax competition, which has a positive but insufficient countervailing effect. Overall, the net impact is negative. These results highlight the necessity of rebalancing financial and administrative powers between central and local governments to promote the transformation of the manufacturing sector and achieve high-quality economic development in China.

Suggested Citation

  • Hui Zou, 2025. "A Study of the Impact of Fiscal Vertical Imbalances on Manufacturing Upgrading," Advances in Economics, Business and Management Research, in: Huaping Sun & Hang Luo & Vilas Gaikar & Natālija Cudečka-Puriņa (ed.), Proceedings of the 2025 10th International Conference on Social Sciences and Economic Development (ICSSED 2025), pages 199-217, Springer.
    • Handle: RePEc:spr:advbcp:978-94-6463-734-2_24
    DOI: 10.2991/978-94-6463-734-2_24
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