Spatial exploration of fiscal policy uncertainty and domestic trade circulation

Wei Que, Yabin Zhang and Yanni Yu

Journal of Asian Economics, 2025, vol. 100, issue C

Abstract: As the main artery facilitating the smooth functioning of the domestic trade market, wholesale and retail trade plays a pivotal role in bridging the temporal and spatial gaps between production and consumption. However, region-specific fiscal policy adjustments introduce complexities into these linkages. Drawing on the spatial activity model by Lanaspa et al. (2001), this study investigates the effects of fiscal policy uncertainty (FPU) on wholesale and retail trade across 283 Chinese cities from 2000 to 2016. The empirical results indicate the following: (1) A 1 % increase in local FPU leads to a 0.149 % increase in local trade activity, while concurrently causing a 0.173 % decrease in trade in neighboring regions; (2) Spillover effects exhibit significant variations between homogeneous and heterogeneous urban clusters, with both positive and negative impacts observed in homogeneous clusters, while heterogeneous clusters generally demonstrate positive spillovers; (3) The spillover effects of FPU on domestic trade circulation are characterized by marked spatial asymmetry; (4) Labor costs exert a significant negative influence on the transmission of FPU impacts on trade circulation. These findings contribute to a nuanced understanding of the spatial dynamics of fiscal policy uncertainty and underscore the importance of formulating targeted policy interventions to mitigate negative spillovers, thereby enhancing policy adaptability within the context of a unified national market.

Keywords: Fiscal policy uncertainty(FPU); Domestic trade circulation; Two-regime SDM; Spatial decomposition; Labor mechanism (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:100:y:2025:i:c:s1049007825001307

DOI: 10.1016/j.asieco.2025.102006

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