How can a country graduate from procyclical fiscal policy? : evidence from China

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URL:	https://ub-madoc.bib.uni-mannheim.de/39819
URN:	urn:nbn:de:bsz:180-madoc-398192
Dokumenttyp:	Arbeitspapier
Erscheinungsjahr:	2015
Titel einer Zeitschrift oder einer Reihe:	ZEW Discussion Papers
Band/Volume:	15-068
Ort der Veröffentlichung:	Mannheim
Sprache der Veröffentlichung:	Englisch
Einrichtung:	Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC-Schriftenreihe:	Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Fachgebiet:	330 Wirtschaft
Fachklassifikation:	JEL: H71 , H72 , H77,
Freie Schlagwörter (Englisch):	Fiscal federalism , tax reform , government spending
Abstract:	In this study, we analyze the cyclicality of fiscal policies in China during the period 1978-2013. We find that the cyclicality of local government spending in China significantly affects the cyclicality of total government spending. By employing both time-series and province-level panel data, we show that local budgetary government spending was strongly procyclical during the 1980s, but it became counter-cyclical with respect to nationwide output fluctuations and acyclical with respect to region-specific output shocks since the mid-1990s. We argue that these are likely to be consequences of the 1994 fiscal reform, which revamped the fiscal relations between the central and local governments, reduced the procyclicality of local government budgetary revenue and brought in counter-cyclical intergovernmental transfers. Findings of this study contribute to the debate on how developing and emerging countries, in particular those with federal fiscal structures, could reduce the procyclicality of their fiscal policies.