Research On Active Fiscal Policy

Active fiscal policy is composed of a series of counter-cycality fiscal measures took by Government for smoothing macroeconomic cycle volatility. It has been used to stimulate the demand of consumer and to pull economy growth by the countries in the world. China has taken active fiscal policy twice. In 1998, to answer the effect of Asia finance crisis, active fiscal policy was first took by Government, which has been used until 2004 and changed to sound fiscal policy. In 2008 later, under the complex situation aroused by subprime crisis, new active fiscal policy was took again. In 2010, Chinese active fiscal policy has played a key role in controlling economy recession and keeping the high growth rate of economy. However, the trend of world economy is still not bright, and the fiscal stimulate plan has result in the rise of price under the situation of social production supply superfluous. So now, on the one hand, the policy has to continue to keep the growth of economy; on the other hand, the policy has to avoid the overproduction emersion and the risk of inflation and fiscal deficit expand. At the same time, following that the recession trend of world economy has been mitigated, the exit plan has been in the plan. Under that background, the implement of new active fiscal policy is facing the pressure of adjust, and extend the path to exit. Considering that the establishment and adjust for active fiscal policy has to refer to the effect, the impact and the risk of policy and the trend of future development, this paper would study the implement and the effect of Chinese active fiscal policy.In view of the positive and negative effect of active fiscal policy, this paper would study the effect of active fiscal policy from two aspects based on analysis of the principle and implement of active fiscal policy. The first aspect is positive effect, such as stimulating the economy growth, while the second is negative effect, such as taking the risk. Then, the effect of active fiscal policy is tested, and through the study on active fiscal policy, the principle of counter-cycality fiscal policy is hackled. This paper has sum up the experiences and lessons of two implements of active fiscal policy, combining with the appraising the risk of active fiscal policy, and brought the basic path to adjust the policy and the exit mechanize forward. And more, the innovation of new active fiscal policy is also been discussed, so to enrich the contents of the theory and the policy of fiscal. At first, the implements and the evolvements of two fiscal policies is sum-up and compared, which lays a foundation for the next analysis for the effect and the adjustment of policy. When the effect of active fiscal policy is analyzed, the positive and negative effects are discussed respectively. There, the positive effects include the pull effects on economy growth, investment growth and consume growth, which is discussed for 1998 and 2008 policy implement respectively. On the one hand, this can provide the evidences to analyze the effect of policy; on the other hand, this can provide the referred advices to adjust the new policy.To appraise the real effect of active fiscal policy, the impact of active fiscal policy is studied from several aspects, such as multiplier effect, crowding out effect, Ricardo Equivalence, automatism impact and artificial impact. The empirical analysis method is used to review the impact of active fiscal policy, so to provide the theory and reality bases for new policy, and to complementally appraise the efficacy of active fiscal policy.In addition, in view of the new situation in the process of new policy, while the adjustment is need to adjust the structure conflict in the country, to reduce the dependence on the policy rectify and to exploder the internal driver of economy growth, this paper discuses some problems, such as harmony between the policy tools and harmony between monetary and fiscal policies and the exit mechanism.Based on the theory of fiscal policy, this paper has study the implement and effect of active fiscal policy, aiming at the two implement processes in 1998 and 2008. The main results include:(1) The effects of two implements of active fiscal policy in 1998 and 2008 are remarkable. Both two implements were facing strong extern shocks and included Government expend expand. But, the new policy still actualized tax-reduce policy, and took more attentions on internal demand, project for people's well-being and adjustment for economic structure, while the active fiscal policy has the dominant status in the process.(2) Active fiscal policy has the positive effect on the economy growth, investment and denizen consumption. First, active fiscal policy has played a role in boost economy growth by increasing fiscal expenditure and adjusting the structure of expenditure. One RMB of government expenditures can draw 5.29 RMB GDP growths in 1998-2003. Comparing with other countries, the efficiency of government expenditure to draw economy is still lower. In the process of new policy since 2009, government expenditure have taken notable effect on export and import, but not taken notable industry produce growth rate. It may be due to that the government expenditures have been mostly used to build foundation projects and project for people's well-being since 2009. Second, fiscal pulls economy growth by issuing treasury to draw the increase in fixed asset investment between 1998 and 2003. The contribution ratio and draw ratio of Capitalization to economy growth are increasing between 2007 and 2009. Specially, in 2009, government used issued treasury and local government bonds to increase fixed asset investments, so as to draw economy growth. Third, active fiscal policy have prodigious activated internal consume demand between 1998 and 2003, but the effect of consume on economy growth was decreasing. Since the financial crisis in 2008, Chinese active fiscal policy have stimulated economy growth by drawing consume, while the effect of consume on economy is increasing. After the implement of new active fiscal policy in 2008 later, denizen consume, affected by projects for people's well-being, had more willing to consume, and the drawing effect of active fiscal policy on denizen consume is notable.(3) The effect of fiscal policy in China depended on government expenditure, and the tax has counteractive on the effect of policy. First, the effect of active fiscal policy has been decreasing after its implement, the crowing out effect has been taking on, and the adjustment of policy is needed. Second, the expand effect of active fiscal policy mainly dependents on the artificial effect of government purchase expenditure, and the effects of tax and transfer payout just counteract. The initial effect of active fiscal policy is strong, but declines down with time going. The artificial effect of policy most is positive, while the automotive effect of government fiscal policy most is negative, which lower the integral effect of active fiscal policy. Third, Ricardo Equivalence does not hold on in China, following the testing on the relationship between fiscal expenditure, fiscal deficit and denizen consume.(4) The persisting implement of active fiscal policy caused the fiscal risk increasing, and government expenditure had the crowding out effect on private investment. First, during the period of implement of active fiscal policy, the size of fiscal deficit is increasing. Enormous fiscal deficit would result in bond risk. Second, the avail of policy has taking descending effect. The effect of Chinese issued treasury on the economy growth is decreasing, while the stimulation effect of fiscal policy on private investment and internal consume is also decreasing. In addition, government investment had the crowding effect on the private investment. Third, new fiscal policy had brought the pressure of inflation. And more, because the expand of expenditure and decline of tax, the risk of local government is increasing in the implement process of new active fiscal policy.Since 2010, the object of active fiscal policy to resuscitate economy has been achieved. With the risk of fiscal increasing and the effect of policy declining, the problem that how to adjust the policy and avoid too early or too late to exit is necessary to be consider for policy makers. The gradual adjustment of active fiscal policy, not only includes portfolio optimization of four fiscal tools, but also includes harmonize between fiscal and monetary policies. The exit of active fiscal policy should consider the order of fiscal and monetary policies and the use of the tools of fiscal policy, special the stratagem for exit. The advices given by this paper include:(1)The adjustment of new active fiscal policyFirst, structures optimization and policy adjustment. The active fiscal policy should be, under the pattern of'V for economy resuscitate, a synthesizer which is composed of expenditure expand policy and expenditure adjustment policy. This new fiscal policy should forced on the integration of keeping economy growth short-term and adjusting structure long-term, the integration of expanding internal demand and stabilizing external demand, the integration of vitalizing industry and enhancing the technologically support, the integration of improving people's well-being and enhancing the social security system construct, and the integration of deepening reform and transforming the manner of development. In the process of adjusting the fiscal expenditure structure, the structure of government investment should be adjusted and the input to thin taches which restricts the development of economy and social should increase. In the process of adjusting the tax, the irrational taches in the tax system should be regulated and adjusted, such as cancelling the export rebates to high energy-cost industry, enhancing the power to reduce structurally tax, reforming and optimizing tax mechanism. Implement the reduce tax policy can lighten the firms and denizens'burden, and promote the firms to invest and the denizen to consume. Final, it is necessary to improve fiscal fiance and investment system, enhance the treasury management, and perfect the issuing and management mechanism of local government debt.Second, it is to improving the driving effect of fiscal policy. Fiscal policy should persist in the way of public fiscal, and relieve the conflicts in the social by using policy to draw consume demand, special the internal consume demand. Among which, one important aspect is guarantee every social member enjoy the basic public service and public good through public fiscal system, and transform the fruit of economy development into the basic development requirement.(2)The exit mechanism of new active fiscal policyThe global economic crisis destines the exit strategy, which have to take the global concerted manner. Group 20, IMF and financial stability committee should be the coordinators. Referring to the exit mechanism of internal economic policy, it should do that:first, the loose monetary policy should be exited firstly. Under the background that the trend of economy is becoming to be fine, the loose monetary policy in prior period would be the root of future inflation. So, constituting fine monetary policy exit mechanism is a real problem for center bank of countries in the world. Second, it should reduce government expenditure and improve tax adjustment. To reduce the fiscal risk and to cooperate with the implement of monetary policy, the active, expanding fiscal policy should be transformed and exited. Timely adjustment and transformation of fiscal policy are necessary choices. The main aspect is to reduce government expenditure and improve tax adjustment: on the one hand, it should control fiscal deficit, increase income and reduce expenditure; on the other hand, it should adjust expenditure structure and push reformation.(3)The policy innovation of new active fiscal policyThe price has increased clearly in 2010, which is induced by fiscal expand. The active fiscal policy requires the innovation and adequately plays the leverage role to spur the economic structure adjustment through the change of control instrument. First, it should take both demand and supply managements at the same time. The future fiscal policy should include demand and supply management instruments, and the keystones of policy tools, such as expenditure policy, tax policy and transference payment, should be changed into impulse the economic structure adjustment, advancing human capital, cultivating long-term growth mechanism and struggling realizing income allocation fairly. Second, the policy should lead the public expectation. The government should expedite the social projects construction which takes the improvement of people's well-being as the keystone. In the light of the law of social projects development and different characters of public services, the government should explore effective fiscal guarantee manner, and found healthy long-term mechanism to improve people's well-being, so as to stability and reform public consume expectation, accelerate the spot consume, and drive the economy development for long-term by drawing consume demand.