首页|Estimating local fiscal multipliers using political connections
Estimating local fiscal multipliers using political connections
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NSTL
Elsevier
We use political connections between central and local governments in China to identify the effects of government spending. Our key innovation is using changes of central government ministers as a source of exogenous variation in earmarked transfers received by prefectural city-level governments. The analysis reveals that the increase in earmarked transfers is temporary and local effective tax rates do not respond to such fiscal expansions. Given that using cross-regional analysis for a monetary union can difference out the influence of monetary policy, the fiscal shock we study is a temporary, non-tax financed and no-monetary-policy-response government spending shock. We find the local fiscal multiplier in China is above one and there are no sig-nificant spillover effects from local government spending.
Local fiscal multiplierGovernment spendingPolitical connectionEarmarked transfer
Li, Rong、Zhou, Yijiang
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Renmin Univ China, China Financial Policy Res Ctr, Sch Finance, Beijing, Peoples R China
Chinese Univ Hong Kong, Dept Econ, Hong Kong, Peoples R China
NSTL
Elsevier
