The Long Shadow of a Fiscal Expansion / Chong-En Bai, Chang-Tai Hsieh, Zheng Michael Song.

Format:

Book

Author/Creator:

Bai, Chong-En.

Contributor:

National Bureau of Economic Research.

Hsieh, Chang-Tai.

Song, Zheng Michael.

Series:

Working Paper Series (National Bureau of Economic Research) no. w22801.

NBER working paper series no. w22801

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2016.

Summary:

In 2009 and 2010, China undertook a 4 trillion Yuan fiscal stimulus, roughly equivalent to 12 percent of annual GDP. The "fiscal" stimulus was largely financed by off-balance sheet companies (local financing vehicles) that borrowed and spent on behalf of local governments. The off-balance sheet financial institutions continued to grow after the stimulus program ended at the end of 2010. After the end of the stimulus program, spending by these off-balance sheet companies accounted for roughly 10% of GDP each year, with an increasing share used for what are essentially private commercial projects. The off-balance spending by local governments is likely responsible for a 5 percentage-point increase in the aggregate investment rate and part of the 7 to 8 percentage-point decline in current account surplus since 2008. Finally, we argue that local governments used their new access to financial resources to facilitate access to capital to favored private firms, which potentially worsens the overall efficiency of capital allocation. The long run effect of off-balance sheet spending by local governments may be a permanent decline in the growth rate of aggregate productivity and GDP.

Notes:

Print version record

November 2016.