Long‐Run Fiscal Multipliers for Autonomous Prefectures in China

Abstract

In this paper, we successfully overcome the problems of data availability and investigate the fiscal multipliers for autonomous prefectures in China. We first estimate the long‐run elasticity of gross regional production with respect to fiscal expenditure at the prefecture level using autoregressive distributed lag models. We find that the estimated long‐run elasticity is much less than unity and that the estimated fiscal multipliers for prefectures lie between 0.61 and 4.93, with an average of 1.93. These results indicate that additional fiscal expenditure remains effective in increasing local income and promoting economic growth for most autonomous prefectures.

China’s Fiscal Multiplier and Its State Dependence

“…Similar to our findings, Jeong, Kang, and Kim () and Wang and Wen () show China’s fiscal multiplier is greater than unity, based on structural VAR models using recursive identification strategy. Guo, Liu, and Ma () find a smaller fiscal multiplier (around 0.6) using annual data from China’s prefectures, while Shi and Fukushige () show fiscal multipliers of autonomous prefectures in China ranging from 0.61 to 4.93. Our estimated fiscal multiplier is within the range documented in the literature.…”