Provincial business cycles and fiscal policy in China

This paper begins by documenting a significant challenge for macroeconomic policy-makers in China, namely a spatial dimension that sees considerable asynchronization in business cycle fluctuations across the country’s 31 provinces. This asynchronization points to potential benefits from provinces being able to exercise a degree of fiscal autonomy. The extent to which provinces have this autonomy in practice is then discussed. Finally, provincial fiscal policy is analyzed to assess whether it has had the effect of smoothing provincial business cycles. A key finding is that, if anything, provincial fiscal policy has amplified provincial business cycles, not smoothed them.