Fiscal multipliers, sectoral heterogeneity and reallocation in China

Ying He and Changhua Yu

China Economic Review, 2025, vol. 93, issue C

Abstract: This paper investigates the impact of sectoral heterogeneity on fiscal multipliers in China, focusing on resource reallocation between the capital-intensive heavy sector and the labor-intensive light sector. By applying a Bayesian SVAR model to identify fiscal spending shocks over 1992Q1–2015Q3, we find an aggregate output multiplier of 0.76, with output multipliers of 1.09 for the heavy sector and − 0.25 for the light sector. Fiscal spending shocks lead to rising labor costs, declining capital costs, and the disappearance of light-sector firms—all driven by factor reallocation. Our two-sector model with heterogeneous producers and financial frictions explains these dynamics, highlighting the role of fiscal policy in reshaping sectoral outputs.

Keywords: Fiscal multipliers; Sectoral heterogeneity; Factor reallocation (search for similar items in EconPapers)
JEL-codes: E30 E62 H32 O53 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:chieco:v:93:y:2025:i:c:s1043951x25001142

DOI: 10.1016/j.chieco.2025.102456

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