Estimating the International Spillover Effects of China’s Fiscal Policy: A Global VAR Analysis

Huanhuan Guo () and Tomomi Miyazaki ()
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Huanhuan Guo: Sanda University
Tomomi Miyazaki: Kobe University

No 2504, Discussion Papers from Graduate School of Economics, Kobe University

Abstract: We examine the international spillover effects of China’s fiscal policy. Global vector autoregressive (GVAR) model is used for this purpose. First, we demonstrate that China’s government spending stimulates private consumption domestically and internationally. Second, we show that an improvement in the general government primary balance by the Chinese government has positive and statistically significant spillover effects on the GDP of several regions. These results imply that while government spending in China is an effective short-term stimulus measure to prop up private consumption when a global economic downturn occurs, fiscal rectitude in China in normal times can be justified in the long run from an international perspective.

Pages: 41 pages
Date: 2025-02
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