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Macroeconomic Effects of Government Spending in China

Listed author(s):
  • Wang, Xin
  • Wen, Yi

    ()

    (Federal Reserve Bank of St. Louis)

Registered author(s):

Government spending plays an important role in determining economic performances in China. Its macroeconomic effects are analyzed in this paper. We show that government spending in China (i) Granger-causes output, consumption and investment booms as well as inflation and (ii) has a multiplier larger than 1. The large multiplier effects are found not only in aggregate time-series data but also in panel data at the provincial level. We also provide a theoretical model and Monte Carlo analysis to rationalize our empirical findings. Our theoretical and Monte Carlo analyses support the large multiplier found in China but also suggests that government spending is not necessarily a free lunch in spite of the large multiplier effects.

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File URL: http://research.stlouisfed.org/wp/2013/2013-013.pdf
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File URL: https://doi.org/10.20955/wp.2013.013
File Function: https://doi.org/10.20955/wp.2013.013
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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2013-013.

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Length: 44 pages
Date of creation: 2013
Date of revision: 13 Aug 2017
Handle: RePEc:fip:fedlwp:2013-013
DOI: 10.20955/wp.2013.013
Note: Previously titled as "Is government spending a free lunch? -- evidence from China"
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  1. Franco Modigliani & Shi Larry Cao, 2004. "The Chinese Saving Puzzle and the Life-Cycle Hypothesis," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 145-170, March.
  2. Yongheng Deng & Randall Morck & Jing Wu & Bernard Yeung, 2011. "Monetary and Fiscal Stimuli, Ownership Structure, and China's Housing Market," NBER Working Papers 16871, National Bureau of Economic Research, Inc.
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