Article ID Journal Published Year Pages File Type
5087441 Journal of Asian Economics 2010 10 Pages PDF
Abstract
This paper examines to what extent Chinese provinces with similar fiscal policies have synchronous business cycles. Following Darvas, Rose, and Szapáry (2007), we create a measure of fiscal policy divergence between provinces i and j and see if it is associated with the correlation of output movements between i and j. To examine this relation, we use the correlation model of Frankel and Rose (1998). Since causation can run from both fiscal policy to output fluctuations and from output fluctuations to fiscal policy, we instrument for fiscal policy using government expenditure on cultural activities which remains steady across the business cycle. Results show that provinces with similar budgetary positions tend to have similar business cycle movements.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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