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Credit and Fiscal Multipliers in China

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  • Sophia Chen
  • Lev Ratnovski
  • Pi-Han Tsai

Abstract

We jointly estimate credit and fiscal multipliers in China. We use the tenure of the provincial party secretary, interacted with the type of stimulus used in other provinces, to obtain separate instruments for provincial credit and government expenditure. We estimate a fiscal multiplier of 0.8 and a credit multiplier of 0.2 in 2001-2015. The multipliers have changed over time. The fiscal multiplier has increased from 0.75 in 2001-2008 to 1.4 in 2010-2015. The credit multiplier has declined from 0.17 to zero over the same periods. Our results suggest that reducing credit growth in China is unlikely to disrupt output growth, whereas fiscal policy may be effective in supporting macroeconomic adjustment.

Suggested Citation

  • Sophia Chen & Lev Ratnovski & Pi-Han Tsai, 2017. "Credit and Fiscal Multipliers in China," IMF Working Papers 17/273, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:17/273
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    References listed on IDEAS

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    Cited by:

    1. Sophia Chen & Lev Ratnovski & Pi-Han Tsai, 2017. "Credit and Fiscal Multipliers in China," IMF Working Papers 17/273, International Monetary Fund.

    More about this item

    Keywords

    Credit expansion; Fiscal stimulus and multipliers; Macroprudential Policy; China; Exchange rate policy; Economic conditions; Financial crises; Credit demand; Credit Growth; Multipliers; Comparative or Joint Analysis of Fiscal and Monetary or Stabilization Policy; General; Size and Spatial Distributions of Regional Economic Activity; provincial party secretary; OLS; party secretary; province level; output growth;

    JEL classification:

    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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