Intergovernmental Fiscal Arrangements and Provincial Consumption Risk Sharing in China

Lai, Jennifer T.; So, Erin P. K.; Yan, Isabel K.

doi:10.2753/ree1540-496x500303

Cited by 7 publications

(3 citation statements)

References 24 publications

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“…We split the sample in 1993 because several reforms took place around that time. For example, the tax redistribution reform was implemented in 1994, which consolidated the fiscal power of the central government but also gave more fiscal expenditure discretion to local governments (Lai et al, 2014). This reform provided the central government with more resource to inject funds to the state sector when needed.…”

Section: Datamentioning

confidence: 99%

Regional Capital Mobility in China: An Endogenous Parameter Approach

Lai¹

2015

AEF

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In this paper we empirically evaluate interregional capital mobility in China from 1978 to 2012. We measure the degree of capital mobility as the ability of regions, each as a representative consumer, to engage in intertemporal consumption smoothing through running external imbalances. We estimate a correlated random coefficient model which takes into account the potential correlation of capital mobility with output. Our results show that barriers to capital mobility across regions are still high in China. However, there is a slight increase in capital mobility over time. After 2000, the improvement of the degree of capital mobility becomes stagnant. This may reflect the prevalence of capital market distortion in China.

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Section: Datamentioning

confidence: 99%

Regional Capital Mobility in China: An Endogenous Parameter Approach

Lai¹

2015

AEF

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“…This change in the consumption mix could also lead to an unprecedented consumption pattern, including demand and volatility. However, despite the significant amount of literature on consumption volatility in China-such as Chan et al (2014), Du et al (2010Du et al ( , 2011, Lai et al (2014), and Zhao and Hsu (2012)-most of it uses aggregate data at the provincial level, which does not account for the heterogeneity of household consumption goods and thus underestimates household consumption volatility. This paper fills this gap by using China's urban household survey data to assess consumption volatility from the perspectives of heterogeneity in household consumption goods, cross-household differences, and intertemporal dynamics.…”

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Will the Chinese economy be more volatile in the future? Insights from urban household survey data

Shi

Laurenceson

2019

IJOEM

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Purpose Consumption volatility is a key source of economic growth volatility; thus, it is an important factor in designing macroeconomic policy. The purpose of this paper is to investigate the factors that determine household consumption volatility, using urban household survey (UHS) data over the period 2002–2009 in 18 provinces in China. Design/methodology/approach Both a traditional variance decomposition method and an advanced variance decomposition method are used. Findings The traditional variance decomposition method suggests that heterogeneity of consumption goods is the key to analyze consumption volatility in China. Consumption of transportation makes the highest aggregate contribution and per-unit volatility in consumption volatility, whereas consumption of food makes the second highest aggregate contribution and the lowest per-unit volatility. Further investigation with the advanced variance decomposition method, which allows the authors to capture intertemporal dynamics and cross-household differences simultaneously, finds that the main factor determining the consumption volatility in China is intertemporal dynamics, rather than cross-household differences. Research limitations/implications Future research could fruitfully explore four issues. First, consumption upgrading has increased the volatility of China’s household consumption. How much will this affect economic growth in China under its “new normal” conditions, and how should the Chinese government respond? Second, differences between UHS data and aggregate data in the calculations of consumption risk sharing need to be investigated. Third, it is important to investigate the channels through which the Chinese government can enhance its ability to spread consumption risks and thus reduce consumer consumption volatility. Finally, further study could extend the current 18 provinces to a nation-wide sample and update the data beyond 2009 to estimate the impact of the global financial crisis. Practical implications The results suggest that when policy makers design macroeconomic policies to smooth consumption volatility, they should consider heterogeneity in household consumption goods, regional disparity and intertemporal dynamics simultaneously. Well-managed volatility of Chinese household consumption can contribute to a stable economic growth in China and the world. Social implications Well-managed volatility of Chinese household consumption can contribute to a stable economic growth in China and the world. Originality/value This paper fills this gap by using China’s UHS data to assess consumption volatility from the perspectives of heterogeneity in household consumption goods, cross-household differences and intertemporal dynamics. We make three contributions to the literature. The first contribution of this paper consists of demonstrating the contributions of heterogeneity in household consumption goods to consumption volatility. The second contribution consists of using the advanced variance decomposition method proposed by Crucini and Telmer (2012). This decomposition methodology allows the authors to examine whether household consumption volatility is due to cross-household differences or intertemporal dynamics. The third contribution is that this paper takes Chinese residents’ consumption fluctuations as the starting point to analyze the impact of consumption fluctuations on the future trend of China’s economy.

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Intranational risk sharing and its determinants

2015

Journal of International Money and Finance

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Intergovernmental Fiscal Arrangements and Provincial Consumption Risk Sharing in China

Cited by 7 publications

References 24 publications

Regional Capital Mobility in China: An Endogenous Parameter Approach

Regional Capital Mobility in China: An Endogenous Parameter Approach

Will the Chinese economy be more volatile in the future? Insights from urban household survey data

Intranational risk sharing and its determinants

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