Fiscal Decentralization, Regional Fiscal Competition and Macroeconomic Fluctuations in China
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| Title | Fiscal Decentralization, Regional Fiscal Competition and Macroeconomic Fluctuations in China
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| Author | Zhu Jun and Xu Zhiwei |
| Organization | Nanjing University of Finance and Economics；Shanghai Jiao Tong University |
| Email | 247937882@qq.com；xuzhiwei@sjtu.edu.cn |
| Key Words | Multi-layer Government; Fiscal Decentralization; Regional Fiscal Competition; Fiscal Policy Evaluation |
| Abstract | The central and local governments play crucial roles in the transition process of Chinese economy. However, the multi-layer structure of Chinese government is rarely discussed in literature. In this paper, we incorporate the central-local government structure into an otherwise standard dynamic general equilibrium model. We aim to quantitatively document the macroeconomic effects of fiscal policies under the fiscal decentralization. The model is then calibrated based on the central and local level of fiscal policy data. The quantitative results show that: (i) the model with multi-layer government structure and fiscal decentralization performs reasonably well in explaining Chinese business cycles; (ii) the local public investment has a positive effect on the home region, while deliverers positive spillover effects to other regions through the between-region trade; (iii) the local public consumption has insignificant macroeconomic impact, which is consistent with those findings in the literature. In the counter-factual analysis, we find that the deep fiscal decentralization would (a) amplify the short-run effect of local fiscal policies, while dampen the macroeconomic effects of the central fiscal policies; (b) raise the aggregate output and improve the social welfare. |
| Serial Number | WP1088 |
| Time | 2016-08-02 |
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