Fiscal Spending Research Articles

The framework of macroeconomic policy in China

ABSTRACT In this paper, I explore the macroeconomic policy framework with Chinese characteristics, focusing on its development, distinctive structural features, and the challenges it faces today. Drawing comparisons with conventional practices in market-oriented economies, I highlight three defining features of China’s framework: the use of non-price and non-market-based tools, the unique institutional roles of fiscal and monetary authorities, and the amplifying effect of local governments. Recent trends reveal emerging issues, such as limited fiscal capacity at the local level, weaker macroeconomic policy impacts, and risks associated with low inflation and balance sheet recessions. I argue that China’s macroeconomic regulation should prioritize counter-cyclical measures over cross-cyclical adjustments, improve policy coordination, and utilize sovereign credit to mitigate systemic risks. Finally, I propose practical recommendations to guide future policies, including fostering moderate inflation, accelerating fiscal spending, and shaping market expectations to stabilize the economy and ensure sustainable growth.

The impact of fiscal spending and financing by Sharia banks on economic growth in Indonesia

Economic activity can be increased by fiscal policy stimulus and financing by Sharia banks. This study aims to analyze the roles of fiscal policy and banking sector in driving Indonesia’s economic growth. Fiscal Policy, Macroeconomics, Financing, and Economic Growth are the variables used in this study. The data used is secondary data for the 2014-2023 period. This study uses the Error Correction Model (ECM) method. The results show that Fiscal Policy with proxy tax and government expenditure influence Economic Growth. On the other hand, the Financing of the banking sector influences Economic Growth.

Inequality, social mobility and redistributive preferences

In an online experiment, we provide US citizens with information on both inequality of outcomes and opportunities and test the impact on preferences for redistribution. Information on wealth inequalities in the US increases consensus on a more progressive tax system, whereas information on lack of social mobility in the US increases participants’ preferences for redistribution via fiscal spending. Both informational treatments have a stronger impact when participants also learn that higher inequality is not a necessary part of economic development. All informational treatments have a stronger impact for citizens who underestimate the current level of inequality, trust the government, or belong to the middle-income group, while there is no clear relationship between political position and the impact of information on preferences for redistribution.

Climate Change and Fiscal Response: Analysis of Regional Expenditure in Java Island

This study investigates the impact of climate change on regional fiscal policy in Java, Indonesia, focusing on how temperature and rainfall changes influence fiscal spending. Using secondary data from the ERA5 Satellite (2008–2020) and fiscal data from the Directorate General of Fiscal Balance (Direktorat Jenderal Perimbangan Keuangan/DJPK), this research examines 113 districts/cities on Java Island. Climate change indicators—average temperature and rainfall—serve as independent variables, while regional fiscal spending on climate-related initiatives is the dependent variable. Panel data analysis is conducted using three regression models: common effect (OLS), fixed effect, and random effect models, with the Chow and Hausmann tests to identify the most appropriate model. Results indicate a positive relationship between climate change (temperature and rainfall) and increased fiscal spending for climate adaptation and mitigation. The findings support the hypothesis that regions with higher temperatures and increased rainfall experience greater climate-related fiscal spending, highlighting the urgency for such measures in areas farther from the equator.

How ESG enhances corporate competitiveness: Mechanisms and Evidence

This paper uses data from Chinese A-share listed companies (2007∼2021) to investigate the impact of ESG performance on corporate competitiveness and its mechanism. Using a fixed-effects model, this paper finds that ESG performance significantly enhances corporate competitiveness. ESG exerts its influence by reducing financing constraints, enhancing corporate reputation, reducing agency conflicts, and promoting innovation. Heterogeneity analysis finds that firm size, financing convenience, local fiscal spending on science, and management ownership moderate this effect. This study enriches research on the drivers of corporate competitiveness and provides empirical support for long-term value investing in ESG in emerging markets.

Impact of fiscal spending, financial inclusion on financial stability

The existing literature requires further comprehensive study on the relationship among fiscal expenditure, financial inclusion, and financial stability. This empirical study analyzes the impact of fiscal expenditure and financial inclusion on financial stability using panel data from 31 Chinese provinces (autonomous regions and municipalities directly under the central government) from 2011 to 2022. The study findings suggest that fiscal expenditures, financial inclusion, and technological development all improve financial stability. This study serves as a reference for designing fiscal expenditure measures and improving financial stability in the region.

Advancing Sustainable Higher Education: Embracing the Triple Bottom Line Integration in Uganda

The purpose of this conceptual paper was to revise Triple Bottom Line Theory of sustainable development as proposed by John Elkington, so as to propose ways of advancing sustainable higher education in Uganda. The major tenets of this theory are economic viability, environmental sustainability and social responsibility. Reduced fiscal spending by governments to higher education, the global calls for mitigation of climate change, youth unemployment and equity calls for higher education to be sustainable, including in Uganda. This paper concludes by proposing that sustainable higher education in Uganda is as a result of : Economic viability (job creation, skill development, research & innovation, community engagement, global education- partnerships with international institutions), environmental sustainability (integration of sustainability in curricula, use of experiential learning, collaboration with stakeholders, addressing resource limitations, empowerment and economic benefits) and social responsibility (community engagement, addressing local and global challenges, integrating social responsibility into missions, and merging social responsibility with internationalization efforts). The paper concludes by recommending empirical validation of the model, both in Uganda and outside Uganda

Financing cross-border road connectivity: Potential impact on Sabah’s output—An input-output table analysis

Fiscal spending for road construction to link Kalabakan, Sabah, Malaysia with North Kalimantan, Indonesia is an idea that have been proposed for over 20 years. The announcement for the relocation of Indonesia’s capital city from Jakarta to East Kalimantan give a strong justification for the construction of the Serudong-Simanggaris road. The fact that population size is big in Kalimantan and strong purchasing power is estimated in North and East Kaliamantan provide a strong argument for the need to have a road link. Having said that, the effect of road construction on output growth is not clear. The purpose of this study is to estimate the impact of road construction and the business activities across two sectors being assumed on output Sabah’s output growth. Based on the input-output analysis conducted using the output multiplier, the one-off road construction would lead to 1.8% growth in Sabah’s overall output.

What drives China's healthcare expenditure? A theoretical and empirical study of determinants and trends.

As economic development advances, there is an increasing focus on improving health conditions, making healthcare expenditure a critical issue worldwide. In China, healthcare spending has shown a marked upward trend, highlighting the importance of understanding its underlying determinants to guide effective policy-making. This study introduces the application of an SV-TVP-FAVAR model to examine the drivers of healthcare expenditure in China from 2007 to 2022. The analysis reveals that economic factors, demographic composition, and policy interventions significantly influence healthcare spending dynamics. Economic growth is strongly linked to increased healthcare expenditure, with economic factors having a particularly pronounced impact during periods of prosperity. Although an aging population drives greater demand for healthcare, the growth rate of healthcare spending has not kept pace with demographic aging, especially following China's economic slowdown. Policy variables present a dual-edged impact: while increased fiscal outlays contribute to budget deficits, limiting the fiscal space for healthcare investment, government emphasis on scientific and technological progress tends to enhance healthcare spending, indicating a synergistic relationship between these areas. Furthermore, the study identifies a prolonged impact of the COVID-19 pandemic on healthcare expenditure, which continues to interact with other driving factors over an extended period. The empirical findings from this research provide crucial evidence to support the development of informed healthcare policies.

The state house prices make: the political elasticities of house prices and rents

ABSTARCT Fiscal policy allocation is not purely determined by the labour-capital conflict, but increasingly around cross-class housing coalitions. Although rising house prices are conventionally understood as drivers of fiscal austerity, this view has been challenged. Alternatively, governments may use fiscal policies to support house price growth to meet the primary economic interests of homeowners and compensate non-homeowners through the welfare system. Using an econometric analysis of 19 advanced economies between 1980 and 2018, we show house prices have positive effects on taxation revenue as well as fiscal spending on public investment, welfare and education. A second multi-level analysis provides a political explanation of this observed outcome by demonstrating parties respond to rising house prices by proposing more welfare and public investment spending in their manifestos. Conterminously rising house prices and rents also lead to greater welfare spending, suggesting governments use fiscal policy to protect those excluded from homeownership from labour market risks.

Improving Urban Ecological Welfare Performance: An ST-LMDI Approach to the Yangtze River Economic Belt

Enhancing urban ecological welfare performance is essential for achieving sustainable urban development and fostering a comprehensive regional green transformation. This study develops a quantitative assessment framework for urban ecological welfare performance, grounded in both the welfare of urban residents and their consumption of ecological resources. Employing the spatio-temporal Logarithmic Mean Divisia Index model to dissect the ecological welfare performance across 108 key prefecture-level cities within China’s Yangtze River Economic Belt, considering both temporal and spatial dimensions, the analysis reveals a “W”-shaped trajectory in the ecological welfare performance from 2006 to 2022, characterized by pronounced spatial disparities. Particularly in the downstream coastal regions and notably the Yangtze River Delta, advantages in social and economic structures, along with public fiscal outlays, contribute to a superior ecological welfare performance, exhibiting a notable spatial spillover effect. The study introduces six key factors—social benefit, economic benefit, population dispersion, population density in urban areas, urbanization scale, and ecological sustainability—to examine their influence on ecological welfare performance, uncovering substantial differences in the outcomes of temporal and spatial decomposition. Temporal decomposition indicates that economic benefit and urbanization scale are the primary drivers enhancing ecological welfare performance, whereas population dispersion is identified as the primary inhibitor. Spatial decomposition reveals that the determinants of above-average urban ecological welfare vary regionally and undergo dynamic shifts over time. Overall, a holistic understanding of the interplay among economic growth, ecological preservation, and the enhancement of residents’ welfare can inform the development and execution of tailored policies by local governments.

Effects of intergovernmental fiscal transfers on technological innovation in China

PurposeThe purpose of this paper is to analyze whether and how intergovernmental fiscal transfers (IFTs) affect technological innovation.Design/methodology/approachChina’s provincial panel data from 2007 to 2019 are used in an empirical study to examine the effect of IFTs on technological innovation and the role of fiscal spending policy in the relationship between the two by using the spatial Durbin model.FindingsResults show an evident spatial correlation for the effect of IFTs on technological innovation, indicating that IFTs have a significant negative influence on technological innovation in local and surrounding regions. IFTs also inhibit technological innovation by negatively affecting science and technology spending and education spending.Research limitations/implicationsThese findings can aid policymakers in advancing technological innovation by improving the system of fiscal transfers and optimizing the structure of fiscal spending.Originality/valueAlthough the determinants of technological innovation have been analyzed, no studies have investigated the effect of IFTs on technological innovation. Thus, this paper aims to address this gap.

“No Less Than 4%”: A Policy Review of China's Fiscal Spending on Education, 2000–2020

Purpose This study aims to review the policy background of China's ever-growing fiscal spending on education and discusses the aggregate growth of its national fiscal spending on education and the responsible bodies involved. Design/Approach/Methods This study adopts policy analysis and descriptive statistics as its primary research methods. Findings Since 2012, China's national fiscal spending on education has accounted for no less than 4% of its gross domestic product for nine consecutive years. Additionally, over 80% of China's total education spending is underpinned by state finances, with the country boasting the largest education system in the world. While compulsory education accounts for approximately half of China's national fiscal spending on education, higher education reflects the highest budgetary education spending per student. Furthermore, China has been actively increasing its fiscal spending on pre-school education. Originality/Value The findings of this study have implications for understanding the status quo and changes in China's education spending.

Has China’s hierarchical medical system improved doctor-patient relationships?

Background and objectiveDeveloping harmonious doctor-patient relationships is a powerful way to promote the construction of a new pattern of medical reform in developing countries. We aim to analyze the effects of China’s hierarchical medical system on doctor-patient relationships, thus contributing to China’s medical and health system reform.MethodsWith panel data on prefectural-level cities in China from 2012 to 2019, we used a time-varying difference-in-differences model to evaluate the effect of hierarchical medical treatment policy.ResultsHierarchical medical treatment policies can significantly improve doctor-patient relationships, and this conclusion is supported by various robustness tests. And improving doctor-patient relationships can be indirectly realized by the optimization of resource allocation and saving of medical costs. In addition, the marginal effect of the pilot policy on doctor-patient relationships decreased with age within the city population. In focal cities and cities with high levels of fiscal spending on health care, the effect of the pilot policy on doctor-patient relationships was stronger.ConclusionWhile reinforcing the literature on the doctor-patient relationship, this study also provides a reference for further exploration of the pilot policy of hierarchical medical treatment and the development of new medical and health system reform in developing countries.

Efficiency evaluation and promoter identification of primary health care system in China: an enhanced DEA-Tobit approach

BackgroundWith Primary Health Care (PHC) being a cornerstone of accessible, affordable, and effective healthcare worldwide, its efficiency, especially in developing countries like China, is crucial for achieving Universal Health Coverage (UHC). This study evaluates the efficiency of PHC systems in a southwest China municipality post-healthcare reform, identifying factors influencing efficiency and proposing strategies for improvement.MethodsUtilising a 10-year provincial panel dataset, this study employs an enhanced Data Envelopment Analysis (DEA) model integrating Slack-Based Measure (SBM) and Directional Distance Function (DDF) with the Global Malmquist-Luenberger (GML) index for efficiency evaluation. Tobit regression analysis identifies efficiency determinants within the context of China’s healthcare reforms, focusing on horizontal integration, fiscal spending, urbanisation rates, and workforce optimisation.ResultsThe study reveals a slight decline in PHC system efficiency across the municipality from 2009 to 2018. However, the highest-performing county achieved a 2.36% increase in Total Factor Productivity (TFP), demonstrating the potential of horizontal integration reforms and strategic fiscal investments in enhancing PHC efficiency. However, an increase in nurse density per 1,000 population negatively correlated with efficiency, indicating the need for a balanced approach to workforce expansion.ConclusionsHorizontal integration reforms, along with targeted fiscal inputs and urbanisation, are key to improving PHC efficiency in underdeveloped regions. The study underscores the importance of optimising workforce allocation and skillsets over mere expansion, providing valuable insights for policymakers aiming to strengthen PHC systems toward achieving UHC in China and similar contexts.

Environmental regulation effect on health poverty in China

How does government spending on environmental protection benefit people's health? The current paper analyzed 2010 and 2018 data from the China Family Panel Studies (CFPS) database to measure the impact of province-level environmental regulations on the health of local population. The study also applied the Alkire Foster method to develop the multidimensional health poverty (MHP) score, a new index intended to measure the health status of individuals in a holistic manner. Our results indicated that more fiscal spending on environmental regulation could improve health of the local population, especially among low-income population living in the rural areas. Further, the size of health benefit differs by the type of environmental regulation. More specifically, regulations focusing on preventing environmental pollution can achieve more sizable health benefits than remedial ones. Finally, fine inhalable particle (PM2.5) has the largest mediating effect on the relationship between environmental regulation and public health. These results provide several policy implications, which highlight the importance of: scaling up fiscal environmental expenditure and optimizing the structure of environmental expenditure with more emphasis on rural areas where more low-income population are located; shifting from ex-post accountability to ex-ante prevention; and strengthening regional cooperation in environmental protection among local governments, and establishing a cross-regional coordination mechanism.

Experimenting with Unconventional Monetary Policy: Quantitative Easing in Emerging Markets During Covid-19

The Covid-19 Global Health Pandemic introduced a number of economic challenges to countries around the world. Notably, most policymakers implemented greater fiscal spending and monetary stimulus. For the first time, 15 emerging market economies experimented quantitative easing. Most were not constrained by the zero-lower-bound condition, and the degree of financial depth, central bank independence, and central bank transparency varied significantly. This research yields three critical findings. First, emerging markets experienced declines in capital flows and depreciation pressure stemming from quantitative easing. Second, quantitative easing in advanced economies had a more sizable and significant effect than domestic policies. Finally, the degree of financial development and central bank independence are key drivers in how quantitative easing impacts exchange rates specifically. More developed financial systems and greater central bank independence correspond to dampening the effect of quantitative easing on exchange rates.

Supply Disruptions and Fiscal Stimulus: Transmission through Global Value Chains

We study the impact of demand and supply factors on bottlenecks and inflation during the COVID-19 pandemic. Initial policy interventions, from lockdowns to fiscal stimuli, triggered shifts in consumer spending and supply chain disruptions. The reopening of economies normalized consumption patterns, but attributing bottlenecks to specific factors remains challenging due to diverse policy responses. This paper empirically integrates fiscal spending, mobility measures, and supply constraints to analyze interconnected factors influencing bottlenecks and inflation internationally. We find an important role played by fiscal shocks and the international propagation of demand and supply forces in shaping bottlenecks and inflation dynamics.

Macroeconomic impacts of monetary and fiscal policy in the euro area in times of shifting policies: A SVAR approach

This paper analyses the impacts of monetary and fiscal policy of the euro area on output and inflation between 2005 and 2022 using a structural vector autoregressive (SVAR) approach. We employ three alternative indicators of monetary policy, alongside government spending and revenue as fiscal variables to estimate the effects across different subperiods. The findings reveal that monetary policy tightening produces a negative and delayed effect on both output and inflation, with the effects differing across alternative monetary policy indicators in terms of duration and magnitude. A fiscal revenue shock is found to be inflationary, whereas a fiscal spending shock initially has a negative effect on growth that later turns positive, but is short-lived. The effects of fiscal policy shocks are more substantial than the effects of monetary policy shocks. The results also suggest that the effects may differ across subperiods, depending on the nature and intensity of the policy shifts.

Changes in the explanation of inflation

Most discussion of inflation in 2021-2022 have focused on product market shocks rather than unemployment indicators. The Phillips curve approach, which provides the traditional theoretical framework, was questioned. In addition to the surge in food and energy prices, many new inflationary factors have come to the fore, such as the disruption in supply chains, as well as fiscal spending and loose monetary policy in the context of the pandemic. These factors do not fit into the traditional approach. In this paper, we review the main literature on the US and European economies to see how the analytical framework represented by the Phillips curve can be adapted to analyse the current situation. Since its inception, the Phillips curve approach has undergone significant changes reflecting changes in the nature of inflation. For example, the unemployment gap was later replaced by the output gap. In the current situation, the output gap has been replaced by arguments in favour of the inclusion of enterprise pricing, marginal cost and the profit rate.