Fiscal Transparency, Expenditure Progress, and Budget Execution Tightening

Budget execution tightening reduces the deficit level of local governments due to budget execution, offsetting the effects of active fiscal policies. This paper focuses on the fiscal system and fiscal operation, studies the impacts of fiscal transparency and expenditure progress on the tightening of local public finance, by introducing a framework from fiscal transparency to budget tightening based on typical facts, and empirical analyses provincial data from 2013 to 2020 by using panel simultaneous equation model and three-stage square method. We found that: (1) the average execution tightening effect of local public finance is about 10% of actual fiscal expenditure, It varies a lot from place to place but the average effects are all positive. (2) Fiscal transparency has significant mitigating effect on budget tightening, with direct impacts mainly occurring in underdeveloped regions. (3) Improving fiscal transparency will directly promote expenditure progress and further alleviate budget tightening through expenditure progress. Expenditure progress is an effective positive intermediary mechanism for fiscal transparency to alleviate budget tightening. (4) After controlling the endogeneity of fiscal transparency, the indirect effect exceeds the direct effect. For policy, we believe that promoting fiscal transparency and the informational transparency of the local government, especially the disclosure of fiscal information of local general public budgets. This will be helpful to make cyclical fiscal policies and to control deficit sizes, make proactive fiscal policies truly work, and to prompte high-quality and efficient economic development.