A Study on the Fiscal Sustainability of China’s Provinces

Round 1

Reviewer 1 Report

The topic chosen by the authors is interesting and analyzed at both theoretical and practical levels, but it covers only one country's situation. The article is well structured, the statements are based on the presented data and calculations. Despite this, there are some aspects, that authors should pay attention to:

1.      The abstract could be more concrete and contain the main essential information: the actuality of the research, purpose and object, research methodology, findings, research limitations, and originality. Also, there is mentioned that: „This study found that the fiscal sustainability of most provinces in China is strong, but that of some provinces is weak“. It would be much more informative if you could specify and name specific provinces.

2.      The first sentence in the Introduction is not clear and looks strange. You have written: „According to the time series data from 2006 to 2019, the revenue and expenditure balance of China's local general public budget is 76.74 billion yuan, 270.66 billion yuan, 22 159.79 billion yuan, -200 billion yuan, -200 billion yuan, -200 billion yuan, -250 billion 23 yuan, -350 billion yuan, -400 billion yuan, -500 billion yuan, -780 billion yuan, -830 billion 24 yuan, -830 billion yuan, and -930 billion yuan, respectively.“ What do these numbers mean? Also, the annual differences in amounts are very large. Are these statistical data correct? Please specify the source.

3.      In the Introduction part, the goal and the object of the study must be exposed. Also, please highlight where is the novelty of your study compared with others.

4.      The methodology part must be improved. Why do you use the GH test? Could you describe it? Also, what data do you use for calculations in your empirical study? What period does it cover? You have mentioned it only in the part of the conclusion.

5.      The majority of the literature analyzed is quite old. From the 42 sources, only 7 are from the last 5 years (2017-2022). Could you refresh it? If not, please argue why?

6.      What are your research limitations?

7.   Table 6 and 9 are too large and could be moved to appendixes.

8.      I would recommend adding a scientific discussion part which could strengthen the credibility of your research.

9.      There are some problems with text formatting (page 2).

 

 

Author Response

Dear reviewer：

Thank you very much for your affirmation of this article and your critical comments. After receiving your comments, we fully respected your comments, formulated a thorough revision plan, and made serious revisions according to your comments. Your comments and our revisions are explained as follows:

 

1. The abstract could be more concrete and contain the main essential information: the actuality of the research, purpose and object, research methodology, findings, research limitations, and originality. Also, there is mentioned that: “This study found that the fiscal sustainability of most provinces in China is strong, but that of some provinces is weak”. It would be much more informative if you could specify and name specific provinces.

Reply：According to the suggestions of the reviewer, first of all, we added information such as research status, research objects and research goals in the abstract. Moreover, we listeded some names of specific provinces in the abstract. （See details: Line 10-12, Page 1; Line 16-17, Page 1）

 

2. The first sentence in the Introduction is not clear and looks strange. You have written: „According to the time series data from 2006 to 2019, the revenue and expenditure balance of China's local general public budget is 74 billion yuan, 270.66 billion yuan, 22 159.79billion yuan, -200 billion yuan, -200 billion yuan, -200 billion yuan, -250 billion 23 yuan, -350 billion yuan, -400 billion yuan, -500 billion yuan, -780 billion yuan, -830 billion 24 yuan, -830 billion yuan, and -930 billion yuan, respectively.“ What do these numbers mean? Also, the annual differences in amounts are very large. Are these statistical data correct? Please specify the source.

Reply：First of all, in response to the reviewer' doubts about the meaning of the data, we modified the sentence behind the data to illustrate the current seriousness and future worrying trend of China's fiscal deficit, which is the necessity of this study. Secondly, for the authenticity of the data, we have added the description of data sources in the form of footnotes.（See details: Line 28-30, Page 1；footnotes, page 1）

 

3. In the Introduction part, the goal and the object of the study must be exposed. Also, please highlight where is the novelty of your study compared with others.

Reply：First of all, according to the suggestions of the reviewer, in the literature review section, we added a description of the research goals and research objects. Considering the smooth connection and logical connection, we did not add it to the Introduction part. Secondly, we can make an explanation for the innovation of this article. In the introduction part, we describes the facts and analyzes the current situation in China. In the literature review part, based on the analysis of previous literature, we points out four major academic contribution, which are the novelty of this study compared with others.( See details: Line 116-117, Page 3)

 

4. The methodology part must be improved. Why do you use the GH test? Could you describe it? Also, what data do you use for calculations in your empirical study? What period does it cover? You have mentioned it only in the part of the conclusion.

Reply：First of all, for the reason why GH test is used in this paper, we added a description of China in 3.1.1.1. That is, "Since 1978, in view of the defects of the planned economy, China has repeatedly implemented major market oriented reforms.", The description of the GH method is also added, that is, "Based on a standard integration model, GH model defines a dummy variable to describe the changes of intercept and slope. Following to the different change directions of intercept and slope, the model can be sub divided into different types." Secondly, as for samples and data, we have already described them in Section 3.2.( See details: Line 154-155, Page 4; Line 160-162, Page 4)

 

5. The majority of the literature analyzed is quite old. From the 42 sources, only 7 are from the last 5 years (2017-2022). Could you refresh it? If not, please argue why?

Reply：In view of the obsolescence of the literature, we can make an explanation. The author did search the latest literature, but there are not many in recent years. The main reasons are as follows: First, in theory, the heyday of research methods literature was not in recent years, but in the 1980s and 1990s. There are many methods to study fiscal sustainability. This paper chooses cointegration method, but it is rare to use cointegration method to study sustainability in recent years. Second, in practice, there was no problem with fiscal sustainability in previous years, especially in China. Social stability, economic prosperity，fiscal and economic practice do not need fiscal sustainability research. Third, in the past one or two years, international trade protection has been strengthened, domestic economic stimulus has been too much, the COVID-19 epidemic has continued, and fiscal sustainability has become a problem. As research lags behind practice, there is little research literature.

 

6. What are your research limitations?

Reply：Thanks for the reminder of the reviewer. As for the limitations of this article, we originally wrote a sentence at the end of the article, "we did not consider the impact of COVID-19 on fiscal sustainability". We didn't feel enough, and added a sentence " And moreover , this paper does not use other research methods to test the definitions of cointegration methods."(See details: Line 465-466, Page 17)

 

7. Table 6 and 9 are too large and could be moved to appendixes.

Reply：Thank the reviewer for these suggestions. Table 6 and Table 9 moved to the appendix is really good for the article. However, we have searched and read other articles of Sustainability, and found that the appendix is rare. We would like to submit this proposal to the editor for decision. Thank you again.

 

8. I would recommend adding a scientific discussion part which could strengthen the credibility of your research.

Reply：Thanks very much to the reviewer for this suggestion. Adding a scientific discussion part can really strengthen the credibility of the research. To this end, we have added a discussion section before the last part of the text.( See details: Line 426-442, Page 16-17)

 

9. There are some problems with text formatting (page 2).

Reply：We admire the reviewer' rigorous academic attitude. We adjusted the line spacing of the first and second paragraphs of this article. In addition, we invited professionals to polish the language of the full text.

 

Thank you once again for your attention to our paper.

Best Regards.

Author Response File: Author Response.docx

Reviewer 2 Report

Some revisions are necessary:

The paper is too technical.

Authors need to separate two issues which are linked but conceptually separate:

One is debt sustainability over time and its links to growth rates of the economy. This is analyzed in the paper.

The second is the issue of fiscal decentralization. Here the authors should examine the literature on the causes and consequences of fiscal decentralization in Indonesia where political economy considerations were at play.

Chinese national income data is notoriously unreliable particularly in the past. What steps have the authors taken to mitigate this problem? 

Author Response

Dear reviewer：

Thank you very much for your affirmation of this article and your critical comments. After receiving your comments, we fully respected your comments, formulated a thorough revision plan, and made serious revisions according to your comments. Your comments and our revisions are explained as follows:

 

1. The paper is too technical.

Reply：Thank the reviewer for the scientific and objective comments. For research technology, here will be our explanation. The reason why we choose a more technical analysis method is: First, we choose the latest research method to analyze more cutting-edge, but it leads to a more technical. Second, a technical method has a complete set of processes. If some processes are deleted, the analysis method will be incomplete. Third, in the face of fewer variables and limited sample data, it is possible to improve the scientific nature of the research only by adopting more technical methods.

 

2. Authors need to separate two issues which are linked but conceptually separate:

One is debt sustainability over time and its links to growth rates of the economy. This is analyzed in the paper.

The second is the issue of fiscal decentralization. Here the authors should examine the literature on the causes and consequences of fiscal decentralization in Indonesia where political economy considerations were at play.

Reply：According to the helpful reminder of the reviewer, we add a description in the following paragraph of equation 6:“Considering that China's political system and financial system are incomplete decentralized systems, and the Chinese government's Budget Law, we do not introduce fiscal decentralization variables in Model II.” In this regard, we explain as follows:

Fiscal sustainability is indeed closely related to fiscal decentralization. For the useful suggestions of the reviewer to separate these two issues, we first explain the theoretical mechanism: fiscal decentralization is related to the political system. China's political system is an incomplete decentralization system, which determines that fiscal decentralization is incomplete. When the fiscal sustainability of provinces is weak, according to the Budget Law of the Chinese government, the transfer payment to provinces is determined by the central government rather than by fiscal decentralization. The main basis for determining the scale of transfer payment is the economic growth rate, and the core determinant of the economic growth rate is the industrial structure.

This paper focuses on the design of research methods and empirical measurement of fiscal sustainability. In theory, it does not analyze the determinants of fiscal sustainability and their relationships. Therefore, it is not necessary to separate the two issues raised by the reviewer in theory, but in empirical research, it is necessary to deal with the trade-off between fiscal decentralization variables and industrial structure variables that determine transfer payments and thus fiscal sustainability. When measuring fiscal sustainability, we need to consider the basis of the central government's transfer payments to provinces, which requires considering fiscal decentralization, industrial structure and other variables. Since only one variable needs to be added to equation 5, according to the above theoretical mechanism, we choose the industrial structure variable and give up the fiscal decentralization variable.

In order not to affect the fluency of the original text, we added a sentence as a short explanation in the following paragraph of equation 6.（See details: Line 191-192, Page 5）

 

3. Chinese national income data is notoriously unreliable particularly in the past. What steps have the authors taken to mitigate this problem? 

Reply：For the reviewer' doubts about the reliability of data, the main measures taken in this paper are: first, we use relative values instead of absolute values for index. For example, for fiscal revenue index and fiscal expenditure index, we express them in terms of their ratios to the corresponding GDP. For the industrial structure index, we express it by the proportion of the primary industry. Second, for data breaking, we use GH method to find it, and use OLS to adjust the data. Third, for the non-equilibrium of data, we use ADP and PP methods to detect and deal with it accordingly.

 

Thank you once again for your attention to our paper.

Best Regards.

 

Author Response File: Author Response.docx

Round 2

Reviewer 2 Report

I am satisfied with the changes