How fiscal rules affect the cyclicality of local government debt? Evidence from China

Mingjuan Liao, Zhixin Liu and Yingying Xu ()
Additional contact information
Mingjuan Liao: Beihang University
Zhixin Liu: Beihang University
Yingying Xu: Beihang University

Empirical Economics, 2025, vol. 69, issue 1, No 13, 465-515

Abstract: Abstract Fiscal rules are an important fiscal tool to manage government debt in many countries, but their impact on local government debt has not been fully explored in China. Based on provincial panel data, we find that explicit debt is countercyclical, whereas implicit debt is procyclical. This study innovatively constructs an indicator system of fiscal rules for China for the first time and finds that fiscal rules increase the countercyclicality of explicit debt and the procyclicality of implicit debt. Additionally, fiscal rules exhibit a stronger effect on the countercyclicality of explicit debt but a weaker effect on the procyclicality of implicit debt in regions with high dependence on transfer payments, limited financing environment, or high institutional quality. After the 2008 global financial crisis, the effect of fiscal rules on increasing the countercyclicality of explicit debt is more pronounced, whereas the effect on increasing the procyclicality of implicit debt is relatively weaker.

Keywords: Fiscal rules; Local government debt; Business cycle; Explicit debt; Implicit debt (search for similar items in EconPapers)
JEL-codes: E32 E62 H30 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s00181-025-02736-x Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:empeco:v:69:y:2025:i:1:d:10.1007_s00181-025-02736-x

Ordering information: This journal article can be ordered from
http://www.springer. ... rics/journal/181/PS2

DOI: 10.1007/s00181-025-02736-x

Access Statistics for this article

Empirical Economics is currently edited by Robert M. Kunst, Arthur H.O. van Soest, Bertrand Candelon, Subal C. Kumbhakar and Joakim Westerlund

More articles in Empirical Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().