A Study of China’s Fiscal Expenditure Multiplier in the Light of Economic Cycles

Social Sciences in China (Chinese Edition)

No.8, 2019


A Study of China’s Fiscal Expenditure Multiplier in the Light of Economic Cycles



Chen Shiyi and Chen Dengke


A systematic examination of the fiscal expenditure multiplier and the way it evolves in the course of the economic cycle is the fundamental premise for a scientific evaluation of the effect of government fiscal expenditure and an important basis for the rational formulation and effective implementation of “precise” fiscal policy. This will contribute to a regulatory system for economic and financial risk in the new era and to the accelerated establishment of a modern fiscal system. Our research overcomes the limitations of existing models, incorporates the features of economic cycles into the framework of research on the issue of China’s fiscal expenditure multiplier, systematically measures China's fiscal expenditure multiplier, and stresses the quantitative examination of the relationship between fiscal expenditure multipliers and the economic cycle. Our findings show that China has a larger fiscal expenditure multiplier than less developed countries and regions but is still some distance away from the world’s major developed economies. Chinese fiscal expenditure multiplier has relatively clear countercyclical characteristics; during the economic downturn, it was 2.3 times larger than during the boom, and it was significantly larger during the 1998 Asian financial crisis and the 2008 international financial crisis than at other periods. The timing of the presentation of fiscal stimulus policies is crucial; to improve the effect of fiscal expenditure, fiscal expenditure policies should be introduced promptly as soon as the crisis occurs.