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Credit and Fiscal Multipliers in China

Author

Listed:
  • Sophia Chen
  • Mr. 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 & Mr. Lev Ratnovski & Pi-Han Tsai, 2017. "Credit and Fiscal Multipliers in China," IMF Working Papers 2017/273, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2017/273
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    Cited by:

    1. Khan, Haider & Szymanski-Burgos, Adam, 2021. "Modeling the Social Economy of Pandemics in China: An Input-Output Approach," MPRA Paper 109021, University Library of Munich, Germany.
    2. Zhang, Wen, 2020. "Political incentives and local government spending multiplier: Evidence for Chinese provinces (1978–2016)," Economic Modelling, Elsevier, vol. 87(C), pages 59-71.
    3. Pi‐Han Tsai & Yongzheng Liu & Xin Liu, 2021. "Collusion, political connection, and tax avoidance in China," Kyklos, Wiley Blackwell, vol. 74(3), pages 417-441, August.
    4. Li, Rong & Zhou, Yijiang, 2021. "Estimating local fiscal multipliers using political connections," China Economic Review, Elsevier, vol. 66(C).
    5. Jungsuk Kim & Mengxi Wang & Donghyun Park & Cynthia Castillejos Petalcorin, 2021. "Fiscal policy and economic growth: some evidence from China," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(3), pages 555-582, August.
    6. Lawson, Jeremy & Watt, Abigail & Martinez, Carolina & Fu, Rong, 2019. "Chinese Financial Conditions and their Spillovers to the Global Economy and Markets," CEPR Discussion Papers 14065, C.E.P.R. Discussion Papers.
    7. Khan, Haider, 2023. "Socialism or Barbarism in the 21st Century? China vs. Global North during Capitalist (COVID) Crisis, Inequality and Poverty," MPRA Paper 117227, University Library of Munich, Germany.
    8. Chen, Sophia & Ratnovski, Lev & Tsai, Pi-Han, 2019. "Credit and fiscal multipliers in China," BOFIT Discussion Papers 5/2019, Bank of Finland Institute for Emerging Economies (BOFIT).
    9. Pi‐Han Tsai & Chien‐Yu Huang & Tsun‐Feng Chiang, 2020. "Fiscal Expenditure And Industrial Land Price In China: Theory And Evidence," Contemporary Economic Policy, Western Economic Association International, vol. 38(4), pages 593-606, October.
    10. Mr. Lev Ratnovski & Sophia Chen & Pi-Han Tsai, 2017. "Credit and Fiscal Multipliers in China," IMF Working Papers 2017/273, International Monetary Fund.
    11. Guangdong Xu & Binwei Gui, 2021. "The non‐linearity between finance and economic growth: a literature review and evidence from China," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 35(1), pages 3-18, May.
    12. Debuque-Gonzales, Margarita, 2021. "Local fiscal multipliers and spillover effects: Evidence from Philippine regions," Economic Systems, Elsevier, vol. 45(2).
    13. repec:zbw:bofitp:2019_005 is not listed on IDEAS

    More about this item

    Keywords

    WP; credit multiplier; multiplier; Credit Growth; Fiscal Stimulus; Macroprudential Policy; Multipliers; China; on-balance-sheet expenditure multiplier; open economy multiplier; on-balance-sheet multiplier; Credit; Fiscal multipliers; Bank credit; Global;
    All these keywords.

    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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