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How Large Will Be the Effect of China's Fiscal-Stimulus Package on Output and Employment?


  • Dong He

    (Research Department, Hong Kong Monetary Authority)

  • Zhiwei Zhang
  • Wenlang

    (Research Department, Hong Kong Monetary Authority)


This paper studies the effects of the fiscal-stimulus package in Mainland China on its output and employment. Using the input-output table as the analytical framework, we argue that the aggregate effect on output and employment of a given amount of fiscal spending depends on the distribution of such spending across different economic sectors. We estimate that the announced fiscal spending of RMB2 trillion yuan in 2009 could lead to a direct increase in output of RMB1.7 trillion yuan, implying a fiscal multiplier of around 0.84 in the short-run, and could potentially generate 18 million to 20 million new jobs in non-farming sectors. We further argue that the size of the fiscal multiplier also depends on the cyclical conditions of the economy and the policy environment, which we simulate using a dynamic structural model. Model results show that the fiscal multiplier in the medium run is around 1.1 as government fiscal spending leads to higher household consumption and corporate investment, which will take time to fully materialise.

Suggested Citation

  • Dong He & Zhiwei Zhang & Wenlang, 2009. "How Large Will Be the Effect of China's Fiscal-Stimulus Package on Output and Employment?," Working Papers 0905, Hong Kong Monetary Authority.
  • Handle: RePEc:hkg:wpaper:0905

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    References listed on IDEAS

    1. DETKEN Carsten & SMETS Frank, "undated". "Asset Price Booms and Monetary Policy," EcoMod2003 330700042, EcoMod.
    2. Michael D. Bordo & David C. Wheelock, 2004. "Monetary policy and asset prices: a look back at past U.S. stock market booms," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 19-44.
    3. Maria Socorro Gochoco-Bautista, 2008. "Asset prices and monetary policy: booms and fat tails in East Asia," BIS Working Papers 243, Bank for International Settlements.
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    5. Adrian, Tobias & Shin, Hyun Song, 2010. "Liquidity and leverage," Journal of Financial Intermediation, Elsevier, vol. 19(3), pages 418-437, July.
    6. Okina, Kunio & Shirakawa, Masaaki & Shiratsuka, Shigenori, 2001. "The Asset Price Bubble and Monetary Policy: Japan's Experience in the Late 1980s and the Lessons: Background Paper," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(S1), pages 395-450, February.
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    8. Burkhard Drees & Ceyla Pazarbasioglu, 1995. "The Nordic Banking Crises; Pitfalls in Financial Liberalization?," IMF Working Papers 95/61, International Monetary Fund.
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    Cited by:

    1. Yingxin Shi & Mototsugu Fukushige, 2015. "Long-Run Fiscal Multipliers for Autonomous Prefectures in China," Pacific Economic Review, Wiley Blackwell, vol. 20(5), pages 687-695, December.
    2. repec:ilo:ilowps:433897 is not listed on IDEAS
    3. Afşin Şahin & Aysit Tansel & M. Hakan Berument, 2015. "Output–Employment Relationship Across Sectors: A Long- Versus Short-Run Perspective," Bulletin of Economic Research, Wiley Blackwell, vol. 67(3), pages 265-288, July.
    4. Pietro Cova & Massimiliano Pisani & Alessandro Rebucci, 2010. "Macroeconomic Effects of China's Fiscal Stimulus," IDB Publications (Working Papers) 1983, Inter-American Development Bank.
    5. Chen, Quanrun & Dietzenbacher, Erik & Los, Bart & Yang, Cuihong, 2016. "Modeling the short-run effect of fiscal stimuli on GDP: A new semi-closed input–output model," Economic Modelling, Elsevier, vol. 58(C), pages 52-63.
    6. Hussain Ali Bekhet & Tahira Yasmin, 2014. "Assessment of the global financial crisis effects on energy consumption and economic growth in Malaysia: An input–output analysis," International Economics, CEPII research center, issue 140, pages 49-70.
    7. Zhang, Zhiwei & Zhang, Wenlang, 2011. "The road to recovery: Fiscal stimulus, financial sector rehabilitation, and potential risks ahead," Journal of Asian Economics, Elsevier, vol. 22(4), pages 311-321, August.
    8. Zhang, Wenlang & Zhang, Zhiwei & Han, Gaofeng, 2010. "How does the US credit crisis affect the Asia-Pacific economies?--Analysis based on a general equilibrium model," Journal of Asian Economics, Elsevier, vol. 21(3), pages 280-292, June.
    9. Dreger, Christian & Zhang, Yanqun, 2014. "Does the economic integration of China affect growth and inflation in industrial countries?," Economic Modelling, Elsevier, vol. 38(C), pages 184-189.
    10. Diao, Xinshen & Zhang, Yumei & Chen, Kevin Z., 2012. "The global recession and China's stimulus package: A general equilibrium assessment of country level impacts," China Economic Review, Elsevier, vol. 23(1), pages 1-17.

    More about this item


    Fiscal policy; Input-output table; Multiplier; Employment coefficient;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • H5 - Public Economics - - National Government Expenditures and Related Policies

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