Credit and Fiscal Multipliers in China
Sophia Chen (),
Lev Ratnovski () and
Pi-Han Tsai ()
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Pi-Han Tsai: Zhejiang University
No GRU_2019_005, GRU Working Paper Series from City University of Hong Kong, Department of Economics and Finance, Global Research Unit
We estimate credit and fiscal multipliers in China, using subnational political cycles as a source of exogenous variation. The tenure of the provincial party secretary, interacted with the credit and fiscal expenditure used in other provinces, instruments for provincial credit and government expenditure growth. We find a fiscal multiplier of 0.75 in 2001-2008, which increased to 1.2 in 2010-2015, consistent with higher multipliers in a slower economy. At the same time, a credit multiplier of 0.2 in 2001-2008 declined to close to zero in 2010-2015, consistent with credit saturation and credit misallocation. Our results suggest that credit expansion cannot further support economic growth in China. The flip side is that lower credit growth is also unlikely to disrupt output growth. Fiscal policy is powerful, and can cushion the macroeconomic adjustment to lower credit intensity.
Keywords: Credit Growth; Fiscal Stimulus; Macroprudential Policy; Multipliers; China (search for similar items in EconPapers)
JEL-codes: E63 G21 H20 R12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cna, nep-fdg, nep-mac and nep-tra
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Working Paper: Credit and fiscal multipliers in China (2019)
Working Paper: Credit and Fiscal Multipliers in China (2017)
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