A Study on the Fiscal Sustainability of China’s Provinces

Abstract

Fiscal imbalances in China are widening; the problem of fiscal sustainability in each province is becoming increasingly serious. However, so far, few studies have focused on the issue of the fiscal sustainability of China’s provinces. This paper will focus on it to clarify the degree of fiscal sustainability in China’s provinces. In this paper, the GH test method is used to analyze the structural breaking of fiscal revenue and expenditure data of each province, the panel cointegration method is used to analyze the relationship between fiscal revenue and expenditure and DOLS is used to estimate the degree of fiscal sustainability of each province. It is found that the fiscal sustainability of most provinces in China, such as Beijing, Shanghai and Guangdong, is strong, while that of some provinces, such as Gansu, Qinghai and Xinjiang, is weak. This paper states that people should pay more attention to the fiscal sustainability of China’s provinces, and provinces with weak fiscal sustainability should minimize unproductive expenditures while the central government should continue to give appropriate financial support to local governments.