This paper studies the effects of government spending on China's output with a threshold structural vector autoregressive model. The empirical findings suggest that increasing government expenditure significantly raises China's aggregate output. Contrary to the evidence of countercyclical fiscal multipliers in the advanced economies, China's fiscal multiplier tends to be procyclical, suggesting a novel fiscal policy transmission mechanism in China.
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.
We contribute to the intense debate on the real effects of fiscal stimuli by showing that the impact of government expenditure shocks depends crucially on key country characteristics, such as the level of development, exchange rate regime, openness to trade, and public indebtedness. Based on a novel quarterly dataset of government expenditure in 44 countries, we find that (i) the output effect of an increase in government consumption is larger in industrial than in developing countries, (ii) the fisscal multiplier is relatively large in economies operating under predetermined exchange rate but zero in economies operating under flexible exchange rates; (iii) fiscal multipliers in open economies are lower than in closed economies and (iv) fiscal multipliers in high-debt countries are also zero.
The recent recession has brought fiscal policy back to the forefront, with economists and policy makers struggling to reach a consensus on highly political issues like tax rates and government spending. At the heart of the debate are fiscal multipliers, whose size and sensitivity determine the power of such policies to influence economic growth. Fiscal Policy after the Financial Crisis focuses on the effects of fiscal stimuli and increased government spending, with contributions that consider the measurement of the multiplier effect and its size. In the face of uncertainty over the sustainability of recent economic policies, further contributions to this volume discuss the merits of alternate means of debt reduction through decreased government spending or increased taxes. A final section examines how the short-term political forces driving fiscal policy might be balanced with aspects of the long-term planning governing monetary policy. A direct intervention in timely debates, Fiscal Policy after the Financial Crisis offers invaluable insights about various responses to the recent financial crisis.
This paper reviews the theoretical and empirical literature on the effectiveness of fiscal policy. The focus is on the size of fiscal multipliers, and on the possibility that multipliers can turn negative (i.e., that fiscal contractions can be expansionary). The paper concludes that fiscal multipliers are overwhelmingly positive but small. However, there is some evidence of negative fiscal multipliers.
The economies of the People's Republic of China and India have seen dramatic growth in recent years. As their respective successes continue to reshape the world's economic landscape, noted Chinese and Indian scholars have studied the two countries' development paths, in particular their rich and diverse experiences in such areas as education, information technology, local entrepreneurship, capital markets, macroeconomic management, foreign direct investment, and state-owned enterprise reforms. Drawing on these studies, ADB has produced a timely collection of lessons learned that serves as a valuable refresher on the challenges and opportunities ahead for developing economies, especially those in Asia and the Pacific.
This book comprises a collection of well-researched essays on selected contemporary economic and finance issues in China, making a timely contribution to the intellectual intercourse regarding the implications of China’s rise. These essays analyze issues related to the state of China’s ecology, real estate market, inbound and outbound FDI, income inequality, etc., and offer analysis on the policy and institutional causes of those issues. Readers will be able to infer their implications for business opportunities in China and the tradeoff / tension between economic growth and social welfare. Moreover, this book introduces an array of data and data sources useful to scholars and practitioners interested in studying the Chinese model of economic growth. This book will be a valuable resource to journalists and scholars trying to gain insight into China’s extraordinary pace of growth in the past three decades.
This paper explores how fiscal policy can affect medium- to long-term growth. It identifies the main channels through which fiscal policy can influence growth and distills practical lessons for policymakers. The particular mix of policy measures, however, will depend on country-specific conditions, capacities, and preferences. The paper draws on the Fund’s extensive technical assistance on fiscal reforms as well as several analytical studies, including a novel approach for country studies, a statistical analysis of growth accelerations following fiscal reforms, and simulations of an endogenous growth model.
Why and how has China succeeded as a developmental state despite a seemingly rents-ridden bureaucracy? Following conventional wisdom, "Weberian" bureaucracies are an institutional precondition for development, especially in interventionist states like China. However, my research finds that China's fast-growing economy has not been governed by a purely salaried civil service. Instead, Chinese bureaucracies still remain partially prebendal; at every level of government, each office systematically appropriates authority to generate income for itself. My study unravels the paradox of "developmentalism without Weberianness" by illuminating China's unique path of bureaucratic adaptation in the reform era -- labeled as bureau-contracting -- where contracting takes place within the state bureaucracy. In a bureau-contracting structure, the state at each level contracts the tasks of governance to its own bureaucracies, assigning them revenue-making privileges and property rights over income earned in exchange for services rendered. Contrasting previous emphases on the prevalence of illicit corruption in China, my study shows how and why bureaucracies in this context are actually authorized by the state to profit from public office. Specifically, I identify two factors that constrain arbitrary and excessively predatory behavior among Chinese bureaucracies: first, mechanisms of rents management, and second, the mediation of narrow departmental interests by local developmental incentives. In short, I argue that it is the combination of an incentive-compatible fiscal design and increasingly sophisticated instruments of oversight that have sustained an otherwise unorthodox structure of governance in China. In a phrase, bureau-contracting presents a high-powered but opportunistic alternative to the Weberian ideal-type. The Chinese experience suggests that "market-compatible" bureaucratic institutions need not necessarily conform to -- and may even diverge significantly -- from standard Western models, at least at early stages of development. My research draws on interviews with 165 cadres across different regions and governmental sectors, as well as statistical analysis of previously unavailable budget data.
