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<p>This study explores the causal relationship between fiscal expenditure scale and the development of the private sector, addressing the issue of endogeneity. The research leverages a quasi-natural experiment based on China’s 2001 targeted transfer payment policy for revolutionary base areas, which were officially designated by the central government in 1979. Using county-level firm data spanning the period from 1997 to 2006 and employing econometric methods such as difference-in-differences with inverse probability weighting and propensity score matching, the study demonstrates that an increase in fiscal expenditure scale significantly restricts the growth of private sector enterprises. This crowding-out effect is found to be more pronounced for private firms compared to individual businesses. The mechanism analysis reveals that the expansion of fiscal expenditure crowds out private sector enterprises by increasing the number of publicly owned enterprises and boosting the loan demand of publicly owned enterprises.</p>

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The private sector impacts of fiscal transfers to old revolutionary base areas: evidence from a fiscal expansion perspective

  • 期刊论文

  • 发表日期：

    2026年4月8日

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  • Dongmin Yao,
  • Yuerui Li,
  • Bohang Gu,
  • Mengqi Cui

摘要

This study explores the causal relationship between fiscal expenditure scale and the development of the private sector, addressing the issue of endogeneity. The research leverages a quasi-natural experiment based on China’s 2001 targeted transfer payment policy for revolutionary base areas, which were officially designated by the central government in 1979. Using county-level firm data spanning the period from 1997 to 2006 and employing econometric methods such as difference-in-differences with inverse probability weighting and propensity score matching, the study demonstrates that an increase in fiscal expenditure scale significantly restricts the growth of private sector enterprises. This crowding-out effect is found to be more pronounced for private firms compared to individual businesses. The mechanism analysis reveals that the expansion of fiscal expenditure crowds out private sector enterprises by increasing the number of publicly owned enterprises and boosting the loan demand of publicly owned enterprises.