Fiscal Risk Sharing in China: Is It Significant and How to Further Improve It?
IMF Working Papers, September 20, 2024
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- Fiscal Risk Sharing in China: Is It Significant and How to Further Improve It?
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Bibliographic details
- Authors: Fei Han, Grace Li Bin, Chenqi Zhou
- Published: September 20, 2024
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400289835.001
Authors and publication
- By Fei Han, Grace Li Bin, Chenqi Zhou
- September 20, 2024
- IMF Working Papers, Working Paper No. 2024/200
- Issue: 200
- Volume: 2024
- Pages: 33
- DOI: https://doi.org/10.5089/9798400289835.001
- ISBN: 9798400289835
- ISSN: 1018-5941
- Stock No: WPIEA2024200
Research question and context
- The COVID-19 pandemic weakened the fiscal positions of local governments in China.
- Recent stress in the Chinese property market has further compounded local fiscal pressures.
- The paper analyzes whether central-to-local fiscal transfers provide meaningful interprovincial risk sharing and how that effect could be enhanced.
Main findings
- Fiscal transfers have played an important role in risk sharing across provinces, although their main purpose remains redistribution.
- An alternative transfer mechanism is proposed in which the size of transfers to each province is linked to the shocks that the province is facing.
- Counterfactual simulations indicate that this alternative mechanism can significantly enhance risk sharing among all provinces against idiosyncratic shocks while maintaining a comparable level of redistribution effect.
Methodology and evidence
- The paper examines the existing central-to-local governmental transfer system and its effect on interprovincial risk sharing and redistribution in China.
- Uses counterfactual simulations to evaluate the proposed alternative transfer mechanism.
- Annex I contains data description and details related to the counterfactual simulation (listed as a keyword in the source).
Policy recommendations and implications
- Link transfer sizes to province-specific shocks to enhance fiscal risk-sharing effects.
- Consider intergovernmental reforms and other structural measures to further improve policy efficiency and effectiveness.
- Preserve redistribution objectives while increasing risk-sharing responsiveness to idiosyncratic shocks.
Subjects and keywords
- Subject: COVID-19, Expenditure, Fiscal policy, Fiscal transfers, Fiscal union, Health, Revenue administration, Tax refunds
- Keywords: Annex I. data description, counterfactual simulation, COVID-19, Fiscal transfers, Fiscal union, IMF working paper 24/200, intergovernmental reform, LG bond issuance, local government, redistribution, Risk sharing, Tax refunds
IMF Working Paper No. 2024/200 — Fiscal Risk Sharing in China: Is It Significant and How to Further Improve It?
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- Working Paper