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Hou paper on debt authority and overstatement of budgetary deficit published in IT&PF

Nov 1, 2021

Debt Authority and Intentional Overstatement of Budgetary Deficit: Evidence from Chinese Provinces

Zhiyong An & Yilin Hou

International Tax & Public Finance, August 2019

Yilin Hou headshot

Yilin Hou

This paper takes advantage of China’s 2011 “debt decentralization” reform to identify its causal impact on the budgetary deficit of Chinese subnational governments (SNGs) by employing a difference-in-differences approach. The authors use data on Chinese SNGs from 2009 to 2014 to implement the analysis. They find that debt decentralization can help contain the intentional overstatement of budgetary deficit by SNGs. The authors argue that their finding carries wider policy implications even beyond China.