Abstract
This paper measures fiscal sustainability of local governments in China and analyzes the effects of vertical fiscal imbalance and transfer payments on fiscal sustainability under the framework of Chinese-style fiscal decentralization. We find that the current fiscal behaviors of local governments in China are unsustainable, but most local governments have sufficient space to establish a positive fiscal feedback mechanism through fiscal adjustment to achieve fiscal sustainability in spite of the existence of “fiscal fatigue”. Moreover, the effect of transfers from central government on fiscal sustainability depends on the degree of vertical fiscal imbalance. More specifically, the transfers have a negative impact when the vertical imbalance is low, and have a positive impact when it’s high. Finally, these results are robust to alternative model specifications and endogeneity issues.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
