Does fiscal behavior volatility affect foreign trade imbalance?

ZHANG Lei1 WANG Dexiang1

(1.Economics and Management School of Wuhan University)
【Knowledge Link】fiscal decentralization

【Abstract】This paper studies the impact of government fiscal policy volatility on foreign trade imbalance and tests the panel data of 30 provinces (including municipalities directly under the central government and autonomous regions) (except Tibet) from 1996 to 2015. The results show that the main reasons for the government fiscal policy volatility are impacts of yardstick effect of information spillover under tax–sharing system and the political system on local government behavior. On one hand, government fiscal policy volatility leads to China’s trade imbalance by affecting the savings–investment gap. On the other hand, such volatility destroys the stability and predictability of bilateral finance and taxation relations between the government and enterprises by affecting the economic and policy environment. So it could be an impediment to technological innovation and industrial upgrading. Further, it impairs the foreign trade structure optimization and further strengthens the competitive advantage of processing trade, finally leading to China’s long– term huge foreign trade surplus.

【Keywords】 expenditure volatility; foreign trade imbalance; savings-investment gap; processing trade;

【DOI】

【Funds】 Project of 2013 Tax-sharing System Reform of Guangdong Provincial Tax Service

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This Article

ISSN:1002-4670

CN: 11-1692/F

Vol , No. 04, Pages 11-23

April 2018

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Article Outline

Knowledge

Abstract

  • Introduction
  • 1 Literature review and theoretical basis
  • 2 Empirical test
  • 3 Conclusions and policy implications
  • References