Tracking China’s Fiscal Sustainability: A Time-Frequency Perspective

Weihong Sun, Huating Lai and Ding Liu

Emerging Markets Finance and Trade, 2023, vol. 59, issue 9, 2851-2865

Abstract: This paper evaluates China’s fiscal sustainability by examining national and regional revenue-expenditure nexuses from a time-frequency perspective. Our analysis is novel since research on China in this respect remains limited, and existing literature largely neglects time-frequency dependencies. We employ wavelet techniques to identify the time-frequency relationship between government revenue and expenditure from 1952 to 2020. We find that the national and regional revenue-expenditure nexuses are frequency-dependent and time-varying, providing a possible explanation for the mixed patterns emerging from the analyses based on traditional methods. In addition, the medium- and long-term national and regional revenue-expenditure nexuses in recent years predominantly support the institutional separation hypothesis. These findings indicate that China’s fiscal risk is rising and urge for fundamental reforms to safeguard budgetary sustainability.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:59:y:2023:i:9:p:2851-2865

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DOI: 10.1080/1540496X.2023.2202792

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