Review Reports - Does Fiscal Vertical Imbalance Enhance the Economic Resilience of Chinese Cities?

Round 1

Reviewer 1 Report

Comments and Suggestions for Authors

The paper „Does Fiscal Vertical Imbalance Enhance the Economic Resilience of Chinese Cities?“ develops an econometric model based on panel data from 246 prefecture-level and higher cities across China from 2007 to 2022. The paper empirically evaluates the effect of fiscal vertical imbalance on local economic resilience, based on the structure of "centralized fiscal power and decentralized management responsibility". By connecting macro-level fiscal relations with local resilience, this study seeks to explain how fiscal vertical imbalance affects local resilience through multiple channels. The analysis indicates that fiscal vertical imbalance significantly strengthens the resilience of local economies.

After a careful examination of the paper, I have come to the conclusion that article is technically adjusted to the guidelines of the journal and it is written in the good scientific English. Structure of the paper is appropriate and well-focused from the introductory part, to methodology, results, literature. In my opinion, the most relevant part of the paper is empirical analysis and interpretation of the results. Authors estimated model of fiscal vertical imbalance using benchmark regression, IV-2SLS estimation with comprehensive robustness check applying replacement of explanatory variables, exclusion of specific municipalities, exclusion of pandemic period samples, and use of standard errors.

Therefore, only minor changes in the paper are required:

Number of references is more than sufficient, however, not all the references from the reference list were cited in the paper. References numbered from 33 to 42 are in the Reference list but not in the text. Authors should include them in the text or delete from the reference list (Ortiz-de-Mandojana, N., Bansal, P. 2016; Browder, R. E., Dwyer, S. M., Koch, H. 2024; Copestake, A., Estefania-Flores, J., Furceri, D. 2024; Xie, W., Guo, J., Zhang, H. 2024; Ozanne, L. K., Chowdhury, M., Prayag, G., Mollenkopf, D. A 2022; Sajko, M., Boone, C., Buyl, T. 2021, Iborra, M., Safón, V., Dolz, C. 2020…)

Other references, are in the text but not in the reference section (for instance, He Guosheng and Yan Jiani 2023). Authors should check all the references and it would be preferable if the authors were used more up-to-date references.

The subject and the aim of the manuscript should be explicitly stated in the Introduction section.
Structure of the paper has to be written at the last paragraph of the Introduction section.
Some remarks concerning future research should be given in the Conclusion section.

I suggest to the Editor of the journal Sustainability to accept this paper for publication, after the minor changes required, because, the paper use interesting empirical research, and could represent contribution to the analysed field.

Author Response

Dear Reviewers,

Thank you very much for your recognition of our paper and for your valuable suggestions. We have carefully addressed each of your comments and made the following revisions to improve the manuscript:

References: We have reorganized the references according to the requirements of the Sustainability journal. All references cited in the text are now included in the reference list, and there are no missing or redundant references.
Introduction:

The subject and aim of the paper have been explicitly stated at the end of the first paragraph of the Introduction.
The structure of the paper has been clearly outlined in the final paragraph of the Introduction.

Future Research:

The conclusion section has been expanded to include suggestions for future research, such as delving into the enterprise or industry level, making comparisons with other countries, and exploring the existence of nonlinear relationships.

We believe these revisions have significantly improved the clarity and completeness of the manuscript. Thank you again for your constructive feedback, which has helped us enhance the quality of our work.

Sincerely,
The Authors

Reviewer 2 Report

Comments and Suggestions for Authors

Follow my recommendations

Describe the risks of vertical fiscal imbalance and why it is positive.
Make it clear that the results may not work in other countries with different tax systems.
Strengthen the connection between cities and sustainable economies, using recent references and the Sustainability journal to increase your paper's adherence to this journal.
Discuss the possible adverse effects of implementing a decentralized fiscal policy.

Comments on the Quality of English Language

The paper is well-written, but some sentences are overly complex and could be made more concise. Additionally, minor grammatical adjustments would enhance readability. A professional proofreading service or language editor could help refine the clarity of the text.

Author Response

Dear Reviewers,

Thank you very much for your professional review and constructive suggestions. We have carefully addressed each of your comments and made the following revisions to improve the manuscript:

Potential Risks of Fiscal Vertical Imbalance: A section discussing the potential risks of fiscal vertical imbalance has been added to the chapter on mechanisms.
Applicability to Different Tax Systems: A new paragraph has been added to the conclusion section, clarifying that the findings of this paper may not be applicable to countries with different tax systems.
Introduction Revision: The introduction has been rewritten to elaborate on the connection between urban economic resilience and sustainable development.
Recent References: Two recent references have been added to support the discussion:

"The Impact of Industrial Linkage Structures on Urban Economic Resilience in China in the Context of the COVID-19 Shock. Sustainability 2023."
"Does Digital Infrastructure Improve Urban Economic Resilience? Evidence from the Yangtze River Economic Belt in China. Sustainability 2023."

Potential Adverse Effects of Decentralized Fiscal Policy: A new paragraph has been added to the conclusion section, discussing the potential adverse effects of implementing a decentralized fiscal policy. It emphasizes the need to ensure the positive effects of fiscal decentralization while avoiding potential negative impacts through institutional design and policy coordination.
Language Polishing: The language issues have been addressed, and the paper has been polished by the editorial team of Sustainability.

We believe these revisions have significantly improved the clarity, depth, and relevance of the manuscript. Thank you again for your valuable feedback, which has helped us enhance the quality of our work.

Sincerely,
The Authors

Reviewer 3 Report

Comments and Suggestions for Authors

The paper "Does Fiscal Vertical Imbalance Enhance the Economic Resilience of Chinese Cities?" seems an interesting proposal, well structured and presented. I have the following comments.
1. I think the authors should improve the introduction. Why is it important to do the study in Chinese cities? What implications would the main results have?
2. When performing panel data analysis. Why don't the authors include unit root or cointegration tests?

3. Are the variables stationary? How do you validate the reliability of the models, or how can you be sure that they are not spurious models?
4. A "Discussion of results" section should be included. This is important to discuss and contrast the results with other similar studies.
5. The conclusions should be improved in terms of highlighting the contribution of the paper or the gap that is filled by this research; and policy implications.
6. It is important to comment on the limitations of the research and future lines of research on the topic.

Author Response

Dear Reviewers,

Thank you very much for your professional review and constructive suggestions. We have carefully addressed each of your comments and made the following revisions to improve the manuscript:

Introduction Revision: The introduction has been significantly revised to emphasize the importance of conducting this study in Chinese cities, clarify the main objectives of the research, and highlight the potential policy implications of the key findings.
Kao Test and Fisher Test: In Chapter 3, the Kao test and Fisher test have been added. All variables have passed these tests, and the null hypotheses have been significantly rejected, indicating that the variables in the panel data are stationary and free from unit roots.
Econometric Model Reliability: The econometric model in this paper is based on the research design of Tóth et al., and the reliability of the model has been ensured through IV-2SLS estimation and comprehensive robustness checks, including replacing explanatory variables, excluding specific cities, excluding pandemic period samples, and using robust standard errors.
Applicability to Different Fiscal Systems: A new paragraph has been added to the conclusion section, clarifying that the research findings may not be applicable to countries with different fiscal systems.
Clarification of Main Contributions: The main contributions of the paper have been further clarified in the introduction, with a clearer emphasis on the policy implications of the research.
Future Research Directions: At the end of the paper, future research directions have been added, including delving into the enterprise or industry level, making comparisons with other countries, and exploring the existence of nonlinear relationships.

Sincerely,
The Authors

Reviewer 4 Report

Comments and Suggestions for Authors

The article under Review: “Does Fiscal Vertical Imbalance Enhance the Economic Resilience of Chinese Cities?” by Qing Zhao & Chih-Hung Yuan

General context. 1. The authors suppose that fiscal vertical imbalance significantly strengthens the resilience of local economies, improves the adaptability and recovery capacity of local economies by increasing government investment, lowering taxes and facilitating industrial structure advancement. The same discourse is presented in Russia (see, e.g. Alekhin B. I. Vertical budget imbalance and regional economic growth // Financial Journal. 2020. Vol. 12. No. 6. pp. 39-53. DOI: 10.31107/2075-1990-2020-6-39-53). That`s why the authors` working hypothesis on the example of Chinese cities is interesting in a comparative approach.

The analysis is made based on the panel data from 246 prefecture-level and higher cities across China from 2007 to 2022 which is representative and gives a profound perspective.
As far as I can see there are no inappropriate self-citations.
The Introdiction embraces literature review (at p.2-3) and describes gives three primary contributions to the discussion the paper offers (p.3).
Then at the part “2.Mechanism of Action” the authors provide their explanation and understanding of their ideas regarding the advancement of tax-sharing system reform (p.3-4), whereas the research is accompanied by the econometric model (para 3.1) (“3.Research Design” at p. 5-6) and “3.3. Data Sources and Descriptive Statistics” (p.6-7) – para. 3.3 should be changed to 3.2.

6.The most interesting parts are “5. Conclusion and Policy Recommendations” (p.13) and “4.Empirical Results and Analysis” (p.7-12). But as I am a lawyer having read paras. 4.1.Benchmark Regression, 4.2. Endogeneity Test and 4.3. Robustness Test I concentrated on paras. 4.4.Mechanism Verification (including paras 4.4.1. Local Government Investment and 4.4.2. Tax Effort) and 4.5. Heterogeneity Analysis. Thus, as the article under Review is mostly of economic nature I believe it should be given to a Reviewer who is economist.

Sincerely yours.

Author Response

Dear Reviewer,

Thank you very much for your recognition of our work and for pointing out the errors in the manuscript. We sincerely appreciate your constructive feedback, which has helped us identify areas for improvement and strengthen the quality of our research. Below, we address your comments and outline the steps we have taken to address the issues you raised:

Correction of Section Numbering: We have corrected the numbering in Section 3, changing "3.3. Data Sources and Descriptive Statistics" to "3.2. Data Sources and Descriptive Statistics" to ensure proper sequencing and clarity.
Comparative Approach: We appreciate your observation regarding the similarity of our hypothesis with studies conducted in Russia, particularly the work of Alekhin B. I. (2020). We agree that a comparative approach could provide valuable insights, and we will consider incorporating a discussion on cross-country comparisons in future research to highlight the universality and specificity of fiscal vertical imbalance's impact on economic resilience.
Focus on Economic Analysis: We understand that as a legal scholar, you focused on the mechanism verification (Section 4.4) and heterogeneity analysis (Section 4.5), which are more aligned with your expertise. We acknowledge that the paper is primarily economic in nature, and we agree that it would benefit from further review by an economist to ensure the technical robustness of the econometric analysis.
Future Directions: Your suggestion to explore cross-country comparisons and the potential for nonlinear relationships aligns with our plans for future research. We will delve deeper into these areas to provide a more comprehensive understanding of fiscal vertical imbalance's impact on economic resilience.
General Improvements: We have carefully reviewed the manuscript to ensure that all sections are clear, well-organized, and free from errors. We have also ensured that all references are appropriately cited and that there are no inappropriate self-citations.

Once again, we sincerely thank you for your valuable feedback, which has helped us improve the manuscript. We hope that the revisions and clarifications address your concerns and enhance the overall quality of the paper.

Sincerely,
The Authors

Round 2

Reviewer 2 Report

Comments and Suggestions for Authors

The authors made the suggested changes. Therefore, I recommend publication.

Author Response

Dear Reviewer,

Thank you very much for your recognition and support of our revision efforts! We are delighted to hear your recommendation for publication. Your valuable feedback has significantly improved the quality and logical coherence of our paper. Based on your final suggestions, we will ensure that all revisions are accurate and submit the final version of the manuscript promptly.

Once again, thank you for your time and professional guidance!

Sincerely, Qing Zhao

Reviewer 3 Report

Comments and Suggestions for Authors

I consider that the authors have made an effort to improve the new version of the paper. However, it appears that the authors do not adequately present the cointegration and unit root tests. Unit root tests are necessary to determine the order of integration of the series and to see if there are conditions to apply cointegration tests. Are the results that the authors present that the series are stationary, in levels or in first differences? , then there would be no conditions to apply cointegration tests?

Author Response

Dear Reviewers,

We would like to extend our sincere gratitude for your significant efforts in improving this manuscript. Below, we provide additional clarifications in response to your comments. We have also carefully studied and analyzed relevant literature, which can help readers better understand the results presented in this paper. For further reference, please see: https://zhuanlan.zhihu.com/p/597462791.

Firstly, the panel tests for all variables in this study are conducted based on level values. The Fisher test results indicate that all variables are stationary, with no unit root issues. Therefore, all variables are stationary at the same order, satisfying the prerequisites for cointegration testing. Subsequently, we applied the Kao test for panel cointegration to examine these variables. The test results confirm that these variables are cointegrated, thus alleviating concerns about spurious regression in our findings.

This version maintains a respectful tone and ensures clarity. If you have any additional points to include or specific adjustments, feel free to let me know!

Best regards,
Qing Zhao

Reviewer 4 Report

Comments and Suggestions for Authors

The article under Review: “Does Fiscal Vertical Imbalance Enhance the Economic Resilience of Chinese Cities?” by Qing Zhao & Chih-Hung Yuan
General context. 1. The authors suppose that fiscal vertical imbalance significantly strengthens the resilience of local economies, improves the adaptability and recovery capacity of local economies by increasing government investment, lowering taxes and facilitating industrial structure advancement. The same discourse is presented in Russia (see, e.g. Alekhin B. I. Vertical budget imbalance and regional economic growth // Financial Journal. 2020. Vol. 12. No. 6. pp. 39-53. DOI: 10.31107/2075-1990-2020-6-39-53). That`s why the authors` working hypothesis on the example of Chinese cities is interesting in a comparative approach.
2. The analysis is made based on the panel data from 246 prefecture-level and higher cities across China from 2007 to 2022 which is representative and gives a profound perspective.
3. As far as I can see there are no inappropriate self-citations.
4. The Introdiction embraces literature review (at p.2-3) and describes gives three primary contributions to the discussion the paper offers (p.3).
5. Then at the part “2.Mechanism of Action” the authors provide their explanation and understanding of their ideas regarding the advancement of tax-sharing system reform (p.3-4), whereas the research is accompanied by the econometric model (para 3.1) (“3.Research Design” at p. 5-6) and “3.3. Data Sources and Descriptive Statistics” (p.6-7) – para. 3.3 should be changed to 3.2.
6.The most interesting parts are “5. Conclusion and Policy Recommendations” (p.13) and “4.Empirical Results and Analysis” (p.7-12). But as I am a lawyer having read paras. 4.1.Benchmark Regression, 4.2. Endogeneity Test and 4.3. Robustness Test I concentrated on paras. 4.4.Mechanism Verification (including paras 4.4.1. Local Government Investment and 4.4.2. Tax Effort) and 4.5. Heterogeneity Analysis.
Thus, as the article under Review is mostly of economic nature I believe it should be given to a Reviewer who is economist. – The article was corrected in all parts, including legal part and “Conclusion and Policy Recommendations” and may be accepted in present form.
Sincerely yours.

Author Response

Dear Reviewer, Thank you very much for your thorough review and constructive feedback on our manuscript, "Does Fiscal Vertical Imbalance Enhance the Economic Resilience of Chinese Cities?" We sincerely appreciate your recognition of our efforts and your recommendation for acceptance in its current form. We have carefully addressed all the points raised in your review, including the legal aspects and the "Conclusion and Policy Recommendations" section. Your insightful comments have greatly improved the quality and clarity of our work. We are particularly grateful for your observation regarding the comparative relevance of our findings to other contexts, such as Russia, which has further enriched the discussion. Once again, thank you for your time and valuable input. We look forward to the possibility of contributing to the journal with this research. Sincerely, Zhao Qing

Round 3

Reviewer 3 Report

Comments and Suggestions for Authors

I understand the authors' efforts to improve the paper. However, I still see the same problem. A cointegration test should not be used if the series are stationary at levels. A cointegration test is performed when the time series are non-stationary.

Comments on the Quality of English Language

I have no comments in this section.

Author Response

Dear Reviewer, Thank you very much for your rigorous approach and valuable comments. We have carefully reviewed and revised the analysis process. We have confirmed that cointegration tests are not necessary when the variables are already stationary. If there are any further issues or areas that need improvement, please do not hesitate to let us know. We will address them promptly and thoroughly. Best regards,
Qing Zhao