The Nonlinear Effect of Financial and Fiscal Policies on Poverty Alleviation in China—An Empirical Analysis of Chinese 382 Impoverished Counties with PSTR Models
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RESEARCH ARTICLE The nonlinear effect of financial and fiscal policies on poverty alleviation in ChinaÐAn empirical analysis of Chinese 382 impoverished counties with PSTR models 1 1 2 3 Xicong KuangID *, Huihuang Liu , Guoqiang Guo , Haixing Cheng 1 School of Economics and Trade, Hunan University, Changsha, China, 2 School of Economics, Huazhong University of Science and Technology, Wuhan, China, 3 School of Economics, Huazhong University of Science and Technology, Wuhan, China * [email protected] a1111111111 a1111111111 a1111111111 Abstract a1111111111 a1111111111 Using panel smooth transition regression (PSTR) models, this paper studies the effects of financial and fiscal policies on poverty reduction across 382 poverty-stricken counties in China. The findings are that both fiscal and financial policies have a positive influence on poverty reduction, and their relationships are nonlinear. For either a high or low degree of OPEN ACCESS poverty, fiscal policies are effective for poverty reduction, while financial policies have a Citation: Kuang X, Liu H, Guo G, Cheng H (2019) greater impact on poverty reduction when there is a medium degree of poverty. Therefore, The nonlinear effect of financial and fiscal policies in deciding which policies should be prioritized for reducing poverty, the level of poverty on poverty alleviation in ChinaÐAn empirical should be taken into account. To be more specific, when a portfolio of poverty-reduction poli- analysis of Chinese 382 impoverished counties with PSTR models. PLoS ONE 14(11): e0224375. cies is implemented, fiscal policies should be prioritized at the beginning, when the inci- https://doi.org/10.1371/journal.pone.0224375 dence of poverty is high. Then, financial support should come to the forefront as the poverty Editor: Stefan Cristian Gherghina, The Bucharest level drops, and fiscal support should be stepped up when the poverty level continues to University of Economic Studies, ROMANIA drop. Received: March 11, 2019 Accepted: October 13, 2019 Published: November 5, 2019 Copyright: © 2019 Kuang et al. This is an open Introduction access article distributed under the terms of the Creative Commons Attribution License, which Promoting the development of poverty-stricken areas to eliminate poverty and achieve com- permits unrestricted use, distribution, and mon prosperity is the shared aspiration of all mankind. As the most populous developing reproduction in any medium, provided the original country in the world, China suffers from a weak economic foundation and uneven develop- author and source are credited. ment. Poverty-stricken areas in China particularly bears the brunt with a large poor popula- Data Availability Statement: All relevant data are tion, making it more difficult to reduce poverty there. Poverty reduction has always been high within the manuscript and its Supporting on the agenda of Chinese policymakers, in 1986, the Chinese government established the Lead- Information files. ing Group of Economic Development in poverty-stricken areas (later renamed the State Coun- Funding: The authors received no specific funding cil Leading Group Office of Poverty Alleviation and Development, referred to as the CPAD), for this work. which have been using multiple channels to promote development and raise income levels in Competing interests: The authors have declared impoverished regions.According to the CPAD, the Chinese government has identified the 832 that no competing interests exist. counties as poverty-stricken counties at the end of 2014, thanks to a package of fiscal, taxation, PLOS ONE | https://doi.org/10.1371/journal.pone.0224375 November 5, 2019 1 / 19 The nonlinear effect of financial and fiscal policies on poverty alleviation in China industrial and financial policies, the incidence of rural poverty in China fell from 97.5 percent in 1978 to 1.7 percent in 2018. At present, the poor mainly live in economically backward regions; our country's 832 impoverished counties are largely distributed in economically underdeveloped areas in the Midwest. In particular, 74% of the poverty counties are in the west, and number of poor population in the western region accounted for 84.3% of the total number of poor population across the country. Based on figures released by the National Bureau of Statistics and the ªChina rural poverty monitoring Reportº, according to the author's calculation the correlation coefficient between the poverty incidence and rural per capita income is approximately -0.368.Therefore, One way to reduce poverty is to promote economic development in poor areas. Not only does practice show economic development is the answer to reducing poverty but also plenty of theories prove this is so (Li Xiaoyun et al., 2010; Xia Qingjie et al., 2010; Lin Boqiang, 2003; Zhang Cui, 2011; Hu Bing et al., 2007; Wan Guanghua and Zhang Yin, 2006; Klasen and Waibel,2010; David Dollar and Aart Kraay, 2002; Ravallion,1995; Chambers et al.,2008)[1±10].To achieve economic development in impover- ished areas, according to Walt Rostow's Stages of Growth in Economies, three preconditions must be in place: (a.) Increase the rate of productive investment, so that accumulation accounts for more than 10% of national income; (b.) More than one important industry is established and developed; and (c.) institutional reform gives rise to a new political or social structure that allows for the expansion of modern sectors. In reality, the third condition of economic take-off is very difficult, the most important is to achieve economic take-off through the first two con- ditions.Both improving productivity and developing important industries require capital input, which is essential for economic development in poor areas(Li Xueping, 2015; Jia Yu, 2012; Li Xunlai, Li Guoping, Li Fuzhu, 2005; Zhou Xiao, Zhunong, 2003)[11±14]. This is also true at the micro level: for an individual to recover from poverty, production factors such as land, labor and capital are needed. Economic theories also show that capital is indispensable for an economy to grow fast and reach the state of equilibrium; this is especially true with impoverished areas where the absence of capital is the main obstacle to economic growth and income increase(Liu Wei, Fan Xin, 2019; Xie Danyang, Zhou Zexi, 2019; Wang Chunchao, 2011)[15±17]. All this considered, ramping up capital input is key to economic growth, which leads to poverty reduction. At present, in poor areas or poor individuals with poor initial conditions, it is very slow and difficult to gradually realize capital accumulation through primitive means, that is, relying on self-cycle. (Xu Changsheng 1992, 1995; Research Team of Agricultural Economics, Research Center of Ministry of Agriculture, 1997; Todaro, 1991; Solow, 1957)[18±22]. Therefore, it is necessary to develop policies including the introduction of capital to speed up capital accumu- lation, shorten the primitive stage of development and shake off poverty quickly. Fiscal and financial policies are currently the most common methods used to introduce much-needed capital from outside. Many scholars have done empirical researchs on this subject(Cepparulo et al.,2017)[23].It has been proven that both types of policies are effective in boosting economic growth (Yang Youcai, 2014; Wu Zhi, 2010; Li Yankai and Han Yanchun, 2013; Chen Yulu et al., 2016; Wang Dingxiang et al., 2009; Ding Zhiguo et al., 2014; King and Levine, 1993)[24± 30]. According to our research, both fiscal and financial policies can positively affect economic growth and increase incomes. However, the relationship is nonlinear and subject to a thresh- old effect, so a well-designed portfolio combining fiscal and financial policies should be put in place to effectively reduce poverty. The rest of this paper is structured as follows: Section 2 briefly reviews the literature on the poverty-reduction effects of fiscal and financial policies. Section 3 explains the PSTR models. Section 4 describes the model estimation and interprets the results, and section 5 provides the concluding remarks and policymaking recommendations. PLOS ONE | https://doi.org/10.1371/journal.pone.0224375 November 5, 2019 2 / 19 The nonlinear effect of financial and fiscal policies on poverty alleviation in China Theoretical analysis and hypotheses Financial policies for poverty alleviation include investing in credit and providing financial services to individuals and businesses, such as depositing funds, lending funds, currency exchange, online payments, cash services, and mobile banking. Fiscal policy include transfer- ring payments from the central government, Central Government's Special Fund and so on. Fiscal and financial policies, as two important ways of introducing capital and fuel economy in poor areas, differ in terms of their effects on poverty reduction. Financial channels provide more opportunities to access funds, such as idle money col- lected by banks, grants from central banks or funds generated from interbank business. Some banks can resort to other methods of fund-raising, such as issuing bonds and going public. However, the main money source of fiscal policy is the revenue of local governments and transfer payments from the central government. Although some local governments also issue bonds to raise money from the wider community, the bond-issuing scale is restricted by future revenues and the necessity to balance budgets, hence limiting the amount of money that can be raised. Additionally, the Central Government's Special Fund for Poverty Alleviation