Provincial Public Expenditure in China: A Tale of Profligacy

This paper examines the cyclicality of provincial expenditure in China during the period 1978–2013. Using panel data for analysis, it assesses whether provincial expenditure has been pro-cyclical. Pro-cyclicality is found to be a regular feature of provincial fiscal policy. This pro-cyclicality occurs both in times of low and high growth rates and has markedly intensified since 1994 with the increased autonomy of provinces. The paper further finds that the pro-cyclicality bias is mitigated when financial constraints are relaxed, the remaining political life of the governor is long, government efficiency is strong, corruption incidence is low, and governments are large.

Combes J.L., Renard M.F, Tapsoba S. J.A. (2019), “Provincial Public Expenditure in China: A Tale of Profligacy”, Economic Change and Restructuring, vol. 52(1), pp. 19-41