4.7 Article

Vertical fiscal imbalance, transfer payments, and fiscal sustainability of local governments in China

Journal

INTERNATIONAL REVIEW OF ECONOMICS & FINANCE
Volume 74, Issue -, Pages 392-404

Publisher

ELSEVIER
DOI: 10.1016/j.iref.2021.03.019

Keywords

Fiscal transfers; Vertical fiscal imbalance; Fiscal sustainability; Fiscal space

Funding

  1. National Social Science Fund of China [19CJL011]

Ask authors/readers for more resources

The study reveals that the fiscal behaviors of local governments in China are unsustainable, but fiscal sustainability can be achieved through fiscal adjustments despite fiscal fatigue. Furthermore, the impact of transfer payments from the central government on fiscal sustainability depends on the degree of vertical fiscal imbalance.
This paper measures fiscal sustainability of local governments in China and analyzes the effects of vertical fiscal imbalance and transfer payments on fiscal sustainability under the framework of Chinese-style fiscal decentralization. We find that the current fiscal behaviors of local governments in China are unsustainable, but most local governments have sufficient space to establish a positive fiscal feedback mechanism through fiscal adjustment to achieve fiscal sustainability in spite of the existence of fiscal fatigue. Moreover, the effect of transfers from central government on fiscal sustainability depends on the degree of vertical fiscal imbalance. More specifically, the transfers have a negative impact when the vertical imbalance is low, and have a positive impact when it's high. Finally, these results are robust to alternative model specifications and endogeneity issues.

Authors

I am an author on this paper
Click your name to claim this paper and add it to your profile.

Reviews

Primary Rating

4.7
Not enough ratings

Secondary Ratings

Novelty
-
Significance
-
Scientific rigor
-
Rate this paper

Recommended

No Data Available
No Data Available