The nonlinear effect of financial and fiscal policies on poverty alleviation in China-An empirical analysis of Chinese 382 impoverished counties with PSTR models.

Xicong Kuang,Huihuang Liu,Guoqiang Guo,Haixing Cheng,Stefan Cristian Gherghina

doi:10.1371/journal.pone.0224375

Xicong Kuang, Huihuang Liu + Show 3 more

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https://doi.org/10.1371/journal.pone.0224375

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Abstract

Using panel smooth transition regression (PSTR) models, this paper studies the effects of financial and fiscal policies on poverty reduction across 382 poverty-stricken counties in China. The findings are that both fiscal and financial policies have a positive influence on poverty reduction, and their relationships are nonlinear. For either a high or low degree of poverty, fiscal policies are effective for poverty reduction, while financial policies have a greater impact on poverty reduction when there is a medium degree of poverty. Therefore, in deciding which policies should be prioritized for reducing poverty, the level of poverty should be taken into account. To be more specific, when a portfolio of poverty-reduction policies is implemented, fiscal policies should be prioritized at the beginning, when the incidence of poverty is high. Then, financial support should come to the forefront as the poverty level drops, and fiscal support should be stepped up when the poverty level continues to drop.

Highlights

Promoting the development of poverty-stricken areas to eliminate poverty and achieve common prosperity is the shared aspiration of all mankind
Economic theories show that capital is indispensable for an economy to grow fast and reach the state of equilibrium; this is especially true with impoverished areas where the absence of capital is the main obstacle to economic growth and income increase(Liu Wei, Fan Xin, 2019; Xie Danyang, Zhou Zexi, 2019; Wang Chunchao, 2011)[15,16,17]
All this considered, ramping up capital input is key to economic growth, which leads to poverty reduction

Summary

Introduction

Promoting the development of poverty-stricken areas to eliminate poverty and achieve common prosperity is the shared aspiration of all mankind. The value of M or N is 1 or 2, indicating that there will be 1–2 transition locations; when M = N = 1, it implies that the transition of poverty-reduction effect in fiscal or financial model will occur at only one location and the transition functions hzðqbit; gb; cbÞ and hzðqfit; gf ; cf Þ will change to h1ðqbit; gb; cbÞ 1⁄4 1⁄21 þ eÀ gbðqbitÀ cbÞ À 1. In order to visualize and intuitively see the effects of financial and fiscal policy on the level of economic development under different mechanisms, we artificially categorize the incidence of poverty from low to high; the categories are 0–5%, 5–10%, 10–15%, 85–90% and 90–100% and are divided into 19 sections. In order to more accurately describe the mechanism of financial and fiscal policy, the nonlinear panel smooth transformation model is adopted to estimate the relationship between variables(see 4.3)

The selection and processing of the dataset

Results

Conclusion