The impact of strengthening government auditing supervision on fiscal sustainability: Evidence from China's auditing vertical management reform

Government audit supervision is an important part of the national governance system, which has an important impact on government behavior. Taking the 2015 audit vertical management pilot reform implemented in China as a quasi-natural experiment, we adopt the differences-in-differences (DID) method to empirically examine the impact of the strengthening of externality and independence of government audit supervision on fiscal sustainability. The results show that the audit vertical management reform policy significantly reduces the fiscal deficit ratio and leads to the improvement of fiscal sustainability in reform pilot areas. This study not only enriches the research on the relationship between government oversight and fiscal sustainability, but also provides new evidence for the governance of decentralized developing countries.