A Study of the Impact of Fiscal Vertical Imbalances on Manufacturing Upgrading

Hui Zou ()
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Hui Zou: Nanjing Agricultural University, College of Economics and Management

A chapter in Proceedings of the 2025 10th International Conference on Social Sciences and Economic Development (ICSSED 2025), 2025, pp 199-217 from Springer

Abstract: Abstract Manufacturing is central to the development of China’s real economy, while fiscal policy serves as a key tool for macroeconomic regulation by central and local governments. Adjustments in fiscal revenues and expenditures play a critical role in driving the transformation and upgrading of the manufacturing sector. Using panel data from 30 Chinese provinces (including municipalities and autonomous regions) from 2003 to 2020, this study employs a two-way fixed-effects model to examine the impact of fiscal vertical imbalance on manufacturing upgrading. The findings reveal that fiscal vertical imbalance significantly hinders manufacturing upgrading through two mechanisms: suppressing fiscal expenditure bias, which negatively affects upgrading, and intensifying local government tax competition, which has a positive but insufficient countervailing effect. Overall, the net impact is negative. These results highlight the necessity of rebalancing financial and administrative powers between central and local governments to promote the transformation of the manufacturing sector and achieve high-quality economic development in China.

Keywords: Fiscal vertical imbalances; manufacturing upgrading; fiscal spending bias; tax competition (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-734-2_24

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DOI: 10.2991/978-94-6463-734-2_24

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