Nonlinear Shock Effect of China’s Fiscal Policy on Total Factor Productivity—Based on the Dual Perspective of Aggregate and Structure

Yin Hong, Zhang Long () and Ye Xiangsong
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Yin Hong: School of Economics and Statistics, Guangzhou University Guangzhou China
Zhang Long: Institute of Chinese Financial Studies of Southwest University of Finance and Economics, Postdoctor of Guangdong Development Bank Chengdu China
Ye Xiangsong: School of Economics and Statistics, Guangzhou University Guangzhou China

China Finance and Economic Review, 2021, vol. 10, issue 4, 77-95

Abstract: In different economic periods, if the government blindly adopts expansionary fiscal policy, it may not be able to effectively increase total factor productivity (TFP). Based on this, this paper constructs a factor augmented vector autoregressive model with time-varying parameters and stochastic volatility (SV-TVP-FAVAR), and explores the nonlinear shock effect of China’s fiscal policy on TFP from the dual perspective of aggregate and structure. The study finds that: (1) At the aggregate level, the increase in fiscal expenditure in each period has a significant inhibitory effect on TFP, while the increase in fiscal revenue has a significant promotion effect on TFP; (2) At the structural level of expenditure, in the period of economic depression and high economic growth, the increase in investment expenditure, education expenditure, technology expenditure, and public service expenditure all have a strong incentive effect on TFP, but the increase in science and technology and education expenditure in the period of economic stability has not effectively improved TFP; (3) At the structural level of tax, the increase in commodity tax, including consumption tax, value-added tax, and tariff, and individual income tax will significantly inhibit the increase in TFP, but the increase in corporate income tax can significantly increase TFP. Therefore, under the new economic normal, policy makers should build a two-wheel driven fiscal policy of “aggregate regulation and structural optimization” to optimize the structure of fiscal expenditure and taxation, and promote high-quality economic development.

Keywords: fiscal policy; total factor productivity (TFP); nonlinear shock effect (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:bpj:cferev:v:10:y:2021:i:4:p:77-95:n:4

DOI: 10.1515/cfer-2021-0023

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