The Spillover Effects of the European Government Debt Crisis on Chinese Economy

China's local government debt has risen dramatically bringing risks to China's fiscal sustainability and long term economic growth. Using urban construction investment bonds (UCIBs) issued by local government financing vehicles (LGFVs), we study how intergovernmental fiscal transfers impact the issuance of UCIBs under China's unitary currency system. Applying instrumental variable estimation, we find that special-purpose fiscal transfers per capita are positively associated with the issuance of UCIBs. A one-RMB increase in special-purpose fiscal transfers per capita is associated with an increase in the issuance of UCIBs per capita of 0.282 RMB, whereas regular fiscal transfers (including tax rebates and general fiscal transfers) do not affect the issuance of UCIBs. Furthermore, the effect of special-purpose fiscal transfers on the issuance of UCIBs mainly exists in inland cities rather than coastal cities. This imposes risks of “eurozonization” for the Chinese economy. We also find a deterioration of refinancing in terms of issuing more UCIBs.

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Household Debt Revaluation and the Real Economy: Evidence from a Foreign Currency Debt Crisis

The American Economic Review ◽

10.1257/aer.20181585 ◽

2020 ◽

Vol 110 (9) ◽

pp. 2667-2702 ◽

Cited By ~ 2

Author(s):

Emil Verner ◽

Győző Gyöngyösi

Keyword(s):

Foreign Currency ◽

Debt Crisis ◽

Spillover Effects ◽

Household Debt ◽

Sudden Increase ◽

Real Economy ◽

Balance Sheets ◽

Default Rates ◽

Foreign Currency Debt ◽

The Impact

We examine the consequences of a sudden increase in household debt burdens by exploiting variation in exposure to household foreign currency debt during Hungary’s late-2008 currency crisis. The revaluation of debt burdens causes higher default rates and a collapse in spending. These responses lead to a worse local recession, driven by a decline in local demand, and negative spillover effects on nearby borrowers without foreign currency debt. The estimates translate into an output multiplier on higher debt service of 1.67. The impact of debt revaluation is particularly severe when foreign currency debt is concentrated on household, rather than firm, balance sheets. (JEL E21, E32, F34, G51)

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Comments by Herbert Poenisch, on Eurozonization of the Chinese Economy: How Do Intergovernmental Transfers Affect Local Government Debt in China?

Asian Economic Papers ◽

10.1162/asep_a_00582 ◽

2018 ◽

Vol 17 (1) ◽

pp. 19-20

Keyword(s):

Local Government ◽

Government Debt ◽

Chinese Economy ◽

Intergovernmental Transfers

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Hot Money and Quantitative Easing: The Spillover Effects of U.S. Monetary Policy on the Chinese Economy

Journal of money credit and banking ◽

10.1111/jmcb.12501 ◽

2018 ◽

Vol 50 (7) ◽

pp. 1543-1569 ◽

Cited By ~ 6

Author(s):

STEVEN WEI HO ◽

JI ZHANG ◽

HAO ZHOU

Keyword(s):

Monetary Policy ◽

Spillover Effects ◽

Chinese Economy ◽

Quantitative Easing ◽

Hot Money

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A Discussion on the European Debt Crisis by Fiscal Sociology

International Journal of Research in Business and Social Science (2147-4478) ◽

10.20525/ijrbs.v2i4.79 ◽

2013 ◽

Vol 2 (4) ◽

pp. 37-48

Author(s):

Chia-Jen Chang ◽

Chia-Jung Chung

Keyword(s):

Economic Theory ◽

Labor Market ◽

International Business ◽

Debt Crisis ◽

Government Debt ◽

Fiscal Sociology ◽

Neoclassical Economic Theory ◽

European Debt Crisis ◽

The Government ◽

Austerity Policy

The purpose of this article is that discuss the reasons of European debt crisis. Every European country adopts austerity policy, which cannot solve government debt problems and further lead to economic exacerbation and continuous recession, based on the neoclassical economic theory. In order to realize the root of European debt crisis, this article adopts the reaseach method of fiscal sociology. In this study, we think that the government debt problem is the result of economic profits conflict based on the Fiscal Sociology. The economic profits conflict of investment, consumption, international business and labor market will have influence on the government’s revenue and expenditure. Furthermore, the root of the European debt crisis is the uneven income distribution by financialization and neoliberalism.

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