| ID | 182735 |
| Title Proper | Estimating local fiscal multipliers using political connections |
| Language | ENG |
| Author | Li, Rong ; Zhou, Yijiang |
| Summary / Abstract (Note) | We use political connections between central and local governments in China to identify the effects of government spending. Our key innovation is using changes of central government ministers as a source of exogenous variation in earmarked transfers received by prefectural city-level governments. The analysis reveals that the increase in earmarked transfers is temporary and local effective tax rates do not respond to such fiscal expansions. Given that using cross-regional analysis for a monetary union can difference out the influence of monetary policy, the fiscal shock we study is a temporary, non-tax financed and no-monetary-policy-response government spending shock. We find the local fiscal multiplier in China is above one and there are no significant spillover effects from local government spending. |
| `In' analytical Note | China Economic Review Vol. 66, Apr 2021: p.101599 |
| Journal Source | China Economic Review 2021-03 66, 66 |
| Key Words | Government Spending ; Political Connection ; Local Fiscal Multiplier ; Earmarked Transfer |