Back Matter
  • 1 https://isni.org/isni/0000000404811396, International Monetary Fund

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1

We thank James Daniel, Giovanni Dell’Ariccia, Joong Shik Kang, Divya Kirti, Petya Koeva Brooks, and Maria Soledad Martinez Peria for useful comments, and Hala Moussawi and Huy Nguyen for excellent research assistance.

2

The provincial party secretary is the de facto person in charge of the province (Li and Zhou, 2005). In alternative specifications (not reported), we substituted province secretary’s tenure with province governor’s tenure. Our main conclusions are not affected although the effects are in general smaller.

3

Such spillover-related biases would be present in any “open economy multiplier” models.

4

For example, in the 2008-2009 fiscal stimulus in China, transportation and power infrastructure accounted for the highest share of expenditure (37.5%) and health and education for the lowest (3.8%), according to the National Development and Reform Commission. Prior literature suggests that local policymakers prefer to spend on infrastructure because that leads to more easily quantifiable outputs (O’Brien and Li, 1999; Jin et al., 2005; Luo et al., 2010).

6

Source for appointment terms: www.zt360.cn (Zheng Tan Wang). Sources on personal profiles: http://ldzl.people.com.cn (Ren Min Wang) and http://news.xinhuanet.com (Xin Hua Wang). Personal profiles include age, gender, education, central connection (i.e. membership or alternate membership of the party central committee), and localness (i.e. whether the secretary was born or promoted in the same province as the current position). In alternative specifications not reported, we include personal profile indicators in the first-stage regression and find that most are not statistically significant. The only significant indicator is membership of the party central committee, but including this indicator does not change our second-stage results. We therefore opt for a more parsimonious specification.

7

An alternative specification based on one-year changes in the variables, but with contemporaneous and one-year lagged regressors (not reported), produces similar results.

8

Consistent with model (1), the probit uses two-year growth and includes province and year fixed effects. The results without fixed effects are similar. Also, the results are robust to controlling for reappointments. Note that the finding that the appointments are unrelated to provincial economic conditions does not contradict performance-based evaluation of provincial party secretaries. First, if the incumbent secretaries are equally likely to be promoted for good performance or terminated for bad performance, the relationship between economic conditions and secretary appointments remains ambiguous. Second, even if a leader is likely to be promoted or terminated, the exact timing of that may still be determined by factors such as secretary’s tenure or the reshuffling of personnel at the national level. Further, Li and Zhou (2005) show that secretary promotions or terminations are more related to average multi-year rather than short-term performance.

9

The decrease in credit growth in years 8-9 of the tenure has little statistical importance, because the frequency of tenure over 7 years is very low (3 percent in our sample). The finding on the cyclicality of provincial stimulus is consistent with Guo (2009) who shows that county expenditure growth peaks in the third and fourth year of a county leader’s tenure.

10

Again, the high sensitivity of provincial expenditure growth to other provinces’ credit growth in years 8-9 has little statistical importance, because of a low frequency of tenures longer than 7 years.

11

We report results for weak instrument test for all our IV specifications. As Table 3 shows, the Cragg-Donald Wald F-test for excluded instruments comfortably exceeds the critical values tabulated by Stock and Yogo (2005).

12

Since the subsample estimates omit the GFC period (the observations based on 2007-09, 2008-10, and 2009-11 growth rates), the subsample estimates need not average up to the estimates for the full sample. During the GFC period, the credit multiplier appeared high, while the credit multiplier appeared low. Formal estimations during the GFC period are imprecise because of the short sample.

13

The one-sided Z-scores for the difference between early and late sample IV estimates are 1.458 for credit and 1.682 for expenditure, which are significant at the10 percent and 5 percent respectively.

14

The instruments are somewhat weak for the service sector in the post-crisis period (Cragg-Donald Wald F statistic is 11.99, compared to the Stock and Yogo (2005) 5 percent IV relative size value of 13.97), suggesting that the IV estimate may be somewhat biased towards OLS estimates (Bound, Jaeger, and Baker 1995).

15

At the sub-national level, higher-level government has discretion on the expenditure responsibilities of the government in a level immediately below it. In other words, the provincial government has influence on all sub provincial-level expenditure (including cities, prefectures, counties, townships) (Shen et al, 2012)

Credit and Fiscal Multipliers in China
Author: Sophia Chen, Mr. Lev Ratnovski, and Pi-Han Tsai