The Impact Of Economic Policy Uncertainty On Fiscal Subsidies

Economic Policy Uncertainty refers to the fact that the economic entities are unable to predict when and how the government will change the existing economic policies.The empirical research shows that the uncertainty of economic policy will have unnegligible influence on the operation of enterprises through different mechanisms.At the same time,government financial subsidies,as an important expenditure of local and central governments,is an essential way to stabilize the economic,keep effective use of resources.Every year the government will invest a lot of subsidies in enterprises,especially listed companies,As an important tool and means for the government to stabilize the economy,the number and effect of subsides will inevitably be affected in the context of the rising uncertainty of economic policy in recent years.However,the existing research on subsidies ignoring the influence of macro environmental uncertainty on subsidies,so we hope to explore whether and how the uncertainty of economic policy affect subsidies through empirical research in this paper.Using the sample of non-financial companies listed in China’s stock market during 2007 to 2017,combined with China’s economic policy uncertainty index,we explored the influence of Economic Policy Uncertainty on subsidies.Results shows that:(1)With higher economic policy uncertainty,enterprises will receive higher government subsidies,and there is no significant difference between state-owned or non-state-owned enterprises of the amount of financial subsidies issued by government.(2)ln the period of high uncertainty of economic policy,government subsidies will have better effect on company’s economic performance and social performence,the economic performance of non-state-owned enterprises is better than the state-owned enterprises,the social performance of state-owned enterprises is better than the non-state-owned enterprises.(3)Further studies shows that in the period of high uncertainty of economic policy,financial subsidies have eased the underinvestment of enterprises caused by the uncertainty of economic policies.This paper makes a comprehensive study on the uncertainty of economic policy and financial subsidy,provides a new perspective and empirical evidence for this two fields,also shows that the impact of macro-environment on financial subsidy cannot be ignored.In practice,this study helps to understand the influence of uncertainty of economic policy to financial subsidies.In the period of high uncertainty of economic policy,the government should increase financial subsidy,especially for non-state-owned enterprises,alleviate the enterprises’ cash constraints and underinvestment.The disadvantage of this paper is that although the EPU index used in this paper can well describe the trend of Chinese economic policy uncertainty,the index is calculated on the basis of English newspapers published in Hong Kong,there are inevitably errors in the index measurement.In addition,we only discuss from underinvestment in further analysis,the impact of economic policy uncertainty on financial subsidies is diverse,however this paper didn’t discuss other factors.