05
Fiscal decentralization and macroeconomic management
Anwar Shah
International Tax and Public Finance, 2006, Volume 13, Number 4, Pages 437-462

abstract
The purpose of this paper is to address a central question in fiscal federalism - whether or not fiscal decentralization implies serious risks for fiscal discipline and macroeconomic management for the nation as a whole. This paper addresses this important issue by drawing upon the existing evidence regarding macro management and fiscal institutions in federal and unitary countries. This is supplemented by cross country regression analysis plus the analysis of two case studies: the Brazilian federation and the unitary regime in China. The main conclusion of the paper is that decentralized fiscal systems offer a greater potential for improved macroeconomic governance than centralized fiscal regimes. This is because the challenges posed by fiscal decentralization are recognized and they shape the design of countervailing institutions in federal countries to overcome adverse incentives associated with incomplete contracts or the “common property” resource management problems or with rent seeking behaviors.

06
Time for China to move from macro-stability to macro-sustainability: making macro-stimulus work and maintaining its effects
Wing Thye Wooab; Wei Zhang
Journal of the Asia Pacific Economy, Volume 15, Issue 4 November 2010 , pages 349 - 368

abstract
We attribute the success of China's monetary-fiscal policies in producing 8.7% growth in 2009 to the following: (1) the capital adequacy ratio requirement was not binding because the banks' capital had not been reduced by losses on assets like subprime mortgages; (2) the initial fiscal position was sound, and this allowed a substantial expansion of the budget deficit; and (3) the state has direct control over the actions of the state-controlled enterprises and the state-controlled banks, which dominate large segments of the economy, and so could order the state-controlled enterprises to ramp up investments and the state-controlled banks to ramp up lending. However, these quick decisions can be hasty actions that increase the role of the state-controlled firms in the economy and generate non-performing loans in the future. Chinese policy-makers can eliminate the trade-off between maintaining sufficient aggregate demand and ensuring economic efficiency by replacing the present macro-stimulus with new market-friendly growth drivers. Small and medium private banks should be legalized and interest rate liberalized to promote the formation of new private businesses. Farmland should be privatized so that new entrepreneurs would have the collateral to access investment loans. The termination of the household registration system and the adoption of the principle of future home ownership would accelerate high-quality urbanization, whereby the state would build public housing for migrants. China's high economic growth and its integration into the global economy are now threatened by increasing calls in the developed countries, especially in the USA, for protectionism against Chinese exports. As these calls have been prompted by China's chronic trade surplus and by the present deep recession (from the Global Financial Crisis), China should aggressively reduce the trade imbalances (e.g. by removing export rebate, liberalizing imports and modernizing the financial sector) to forestall protectionism.

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07
Meeting the Challenges of Financial Crisis - China's Practice: from Developing Countries' Prospective
Jia Kang, PRC Ministry of Finance
Policy Research Institute, Ministry of Finance, Japan, Public Policy Review, Vol 6, No.4, April 2010

08
HOW LARGE WILL BE THE EFFECT OF CHINA’S FISCAL- STIMULUS
PACKAGE ON OUTPUT AND EMPLOYMENT?
Dong He, Zhiwei Zhang and Wenlang Zhang
HKMA Working Paper 05/2009
9 March 2009

abstract
This paper studies the effects of the fiscal-stimulus package in Mainland China on its
output and employment. Using the input-output table as the analytical framework, we
argue that the aggregate effect on output and employment of a given amount of fiscal
spending depends on the distribution of such spending across different economic sectors.
We estimate that the announced fiscal spending of RMB2 trillion yuan in 2009 could lead
to a direct increase in output of RMB1.7 trillion yuan, implying a fiscal multiplier of
around 0.84 in the short-run, and could potentially generate 18 million to 20 million new
jobs in non-farming sectors. We further argue that the size of the fiscal multiplier also
depends on the cyclical conditions of the economy and the policy environment, which we
simulate using a dynamic structural model. Model results show that the fiscal multiplier
in the medium run is around 1.1 as government fiscal spending leads to higher household
consumption and corporate investment, which will take time to fully materialise.

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09
China: Global Crisis Avoided, Robust Economic Growth Sustained
Vincelette, Gallina Andronova; Manoel, Alvaro; Hansson, Ardo; Kuijs, Louis
World Bank Policy Research Working Paper No. 5435
September 1, 2010

Summary: This paper explores how the ongoing crisis, the policy responses to it, and the post-crisis global economy will impact China's medium-term prospects for growth, poverty reduction, and development. The paper reviews China's pre-crisis growth experience, including its relationship to global economic developments. It discusses the pace, composition, sources, and financing of growth during 1995-2007, and the impact of key external and domestic influences. The paper also analyzes the immediate impact of the global crisis on China's economic performance in 2009 and its likely impact in the short run. It then discusses the government's policy response, with a particular focus on the fiscal and monetary stimulus measures. Finally, the paper explores China's medium-term growth prospects in light of the crisis and the key policies for moving to a robust and sustainable growth path post-crisis.

10
Fiscal Policy and Economic Activity During Recessions in Advanced Economies
Hemming, R., Mahfouz, S., Schimmelpfennig, A.
IMF Working Paper 2002/87

Summary: Using data for advanced economies, this paper investigates whether factors identified in the theoretical and empirical literature explain the effectiveness of fiscal policy in responding to recessions. The results are informative about the fiscal response to recessions but provide only a partial explanation of the impact of fiscal policy on economic activity. Overall, it would appear that fiscal multipliers are very small.

11
The Effectiveness of Fiscal Policy in Stimulating Economic Activity: An Empirical Investigation
Emanuele Baldacci, Marco Cangiano, Selma Mahfouz, and Axel Schimmelpfennig
(Unpublished; Washington: International Monetary Fund)

abstract
Recent years have seen a revival of the debate about the role of fiscal policy in stimulating economic
activity. The empirical literature suggests that fiscal multipliers are typically positive but small, and
while there is some evidence of negative fiscal multipliers, there is no clear consensus on the
preconditions for such an outcome. However, most of the empirical evidence is for advanced
economies and the effectiveness of fiscal policy in emerging market economies, countries in
transition, and developing countries remains largely undocumented. This paper tries to fill this gap by
using data for a large number of countries, including developing countries and emerging market
economies, to examine whether some of the factors identified in the theoretical literature are indeed
important in explaining the effectiveness of fiscal policy in responding to a recession. The focus is on
episodes of recession and the associated fiscal policy response. Given the large number of countries
and episodes, and differences in the size and composition of fiscal responses, initial conditions, and
accompanying policies and developments, the paper explores three different and complementary
approaches to try to account for the interactions between fiscal policy and growth during recession
episodes: descriptive analysis, multidimensional statistical analysis, and standard regression analysis.

12
Rebalancing Growth in China: A Three-Handed Approach
Olivier Blanchard, Francesco Giavazzi
China and World Economy, Volume 14, Issue 4, (1-20) 2006

Abstract
The present paper is an attempt to define the contours of the right macroeconomic strategy for China. In a nutshell, we believe that the package includes a decrease in saving, with a focus on private saving, an increase in the supply of services, in particular health services, and an appreciation of the RMB. This is why we refer to this strategy as a “three-handed approach”: action on the fiscal and budgetary front, accompanied by currency revaluation. We start by asking how the Chinese economy got to where it is, what the strategy has been since the beginning of the reforms, and what the main characteristics of the economy are today. We then ask what is the desirable path for the future, and which are the main policy trade-offs implied by such a path. Finally, we put the various pieces together to describe what we believe is a consistent policy package.

13
Issues in Intergovernmental Fiscal Relations in China
Era Dabla-Norris
IMF Working Paper No. 05/30 2005
abstract
The paper reviews the changing nature of intergovernmental fiscal relations between the
provinces and the central government in China over the past two decades and provides an
assessment of the success of previous reforms in meeting their objectives. Key existing
weaknesses in the current system that undermine these objectives are identified. Alternative
instruments, procedures, rules, and incentives that could result in better outcomes are
outlined by drawing upon relevant cross-country experiences.

14
Fiscal Decentralization and Economic Growth in China
Justin Yifu Lin, Zhiqiang Liu
Economic Development and Cultural Change, Vol. 49, No. 1 (October 2000), pp. 1-21

15
Fiscal decentralization, public spending, and economic growth in China
Journal of Public Economics, Volume 67, Issue 2, 1 February 1998, Pages 221-240
Tao Zhang, Heng-fu Zou
Abstract
This study of China demonstrates how the allocation of fiscal resources between the central and local governments has affected economic growth since reforms began in the late 1970s. We find that a higher degree of fiscal decentralization of government spending is associated with lower provincial economic growth over the past fifteen years. This consistently significant and robust result in our empirical examinations is surprising in light of the argument that fiscal decentralization usually makes a positive contribution to local economic growth.

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