Credit and fiscal multipliers in China

Arbeitspapier

We estimate credit and fiscal multipliers in China, using subnational political cycles as a source of exogenous variation. The tenure of the provincial party secretary, interacted with the credit and fiscal expenditure used in other provinces, instruments for provincial credit and government expenditure growth. We find a fiscal multiplier of 0.75 in 2001-2008, which increased to 1.2 in 2010-2015, consistent with higher multipliers in a slower economy. At the same time, a credit multiplier of 0.2 in 2001-2008 declined to close to zero in 2010-2015, consistent with credit saturation and credit misallocation. Our results suggest that credit expansion cannot further support economic growth in China. The flip side is that lower credit growth is also unlikely to disrupt output growth. Fiscal policy is powerful, and can cushion the macroeconomic adjustment to lower credit intensity.

Object Details

• ISBN: 978-952-323-267-9
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: BOFIT Discussion Papers ; No. 5/2019

Classification and Topics

• Classification: Wirtschaft ; Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Taxation, Subsidies, and Revenue: General ; Size and Spatial Distributions of Regional Economic Activity
• Subject: credit growth ; fiscal stimulus ; macroprudential policy ; multipliers ; China

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Chen, Sophia ; Ratnovski, Lev ; Tsai, Pi-Han
• Event: Veröffentlichung
• (who): Bank of Finland, Institute for Economies in Transition (BOFIT)
• (where): Helsinki
• (when): 2019

Further information

• Handle: http://hdl.handle.net/10419/212913
• Last update: 10.03.2025, 11:44 AM CET