HOW LARGE WILL BE THE EFFECT OF CHINA'S FISCAL STIMULUS PACKAGE ON OUTPUT AND EMPLOYMENT?

This paper estimates the effect of China's fiscal stimulus package on output and employment. The input-output analysis shows that the package has a multiplier of approximately 0.84 in the short run, generating 18-20 million new jobs in non-farming sectors in the first year. A dynamic structural model shows that the multiplier is around 1.1 in the medium run as fiscal spending leads to higher household consumption and corporate investment over time. The size of the fiscal multiplier also depends on the cyclical conditions of the economy, the policy environment and the distribution of funds across sectors. Copyright 2009 The Authors. Journal compilation 2009 Blackwell Publishing Asia Pty Ltd