| Effects of fiscal policy have been one of the most important contents of researches on fiscal policy theory, and are also focus of controversy in theory and practice. There are no consistent views in effects of stabilizing economic cyclical fluctuation and accelerate economic growth interiorly and overseas. This thesis focus on effects of fiscal policy with theoretical study as a start and empirical tests as support, in which cycle stabilizing effect, economic growth effect, inflation effect and sustainability of fiscal policy are studied.Theoretical study starts from summarizing theories of fiscal policy overseas, analyzes theoretical disagreements, analyzes effects of fiscal policy in China theoretically and mathematically, and puts forward some hypothesis. Which are tested empirically later.Some findings, as part of results for researching in this period, are listed below: (1) Fiscal automatic stabilizer in China makes little, which is much smaller than western developed countries. The reasons are as follows: firstly, our country is"small government"; secondly, the tax structure gives priority to indirect taxes; thirdly, the scale of social security is narrow.(2) Discretional fiscal policy is counter-cyclical while economic cycle falls. While economic grows, discretional fiscal policy is counter-cyclical in the regimes where output gap is positive and is pro-cyclical in the regimes where output gap is negative.(3) Effects of fiscal policy on economic growth in China are non-linear. In the regimes, such as 1953-1982, 1987-1990 and 1994-1995, the effect of fiscal policy is non-Keynesian, which is resulted from shortage economy and government's quantity restrictions; While in the regimes: 1983-1986, 1991-1993 and 1996-2004, the effect of fiscal policy is Keynesian, when our economy is suffering from Inadequate effective demand. Finally, after retesting the reasons of non-linear effects from expectation views concluded in overseas literature, we find that initial fiscal conditions and magnitude of fiscal consolidations are not necessarily related to non-linear effects of fiscal policy.(4) Effects of fiscal policy on private consumption in China are non-linear, which is mainly from government consumption. In the regimes, such as 1978-1980 and 1984-1997, the effect os fiscal policy is non-Keynesian, but that is not significant. While in the regimes: 1981-1983, 1998-2004, effects of government consumption and tax on private consumption are Keynesian. Effect of government investment on private consumption is linear, but asymmetric. Initial fiscal conditions and magnitude of fiscal consolidations are not necessarily related to non-linear effects of fiscal policy.(5) Expansionary fiscal policy in 1996-2004 stimulates economic growth effectively, that is , effect of fiscal policy in this regime is Keynesian.(6) Discretionary fiscal policy has inflation effect. Expansionary fiscal policy makes price move upwards in short run, but the magnitude is small.(7) Effects of fiscal policy on economic growth and inflation are asymmetric, that is, effects of expansionary fiscal policy economic growth and inflation are much stronger than those of contractionary fiscal policy.(8) According to sustainability test of fiscal policy, we know that fiscal policy at present is unsustainable, which suggests that it is right for our government to turn expansionary fiscal policy to the neutral one.There are six chapters in this thesis as follows:In chapter 1, concentration on empirical literature review for effects of fiscal policy including cycle stabilizing effect, economic growth effect and sustainability, so as to realize recent development in this field and makes emphasis and innovation in this thesis clear.The chapter 2 is main part of this thesis, studying theories of fiscal policy effect. summarizing theories of fiscal policy overseas, analyzes theoretical disagreements, analyzes effects of fiscal policy in China theoretically and mathematically, and puts forward some hypothesis.In chapter 3, cycle stabilizing effect of fiscal policy is tested empirically. Firstly, potential output in China are estimated by neo-Keynesian dynamic model, and structural budget balance and cyclical budget balance are estimated with the results above. Secondly, fiscal automatic stabilizer in China is analyzed with cyclical budget balance, the result shows that Fiscal automatic stabilizer in China makes little, which is much smaller than western developed countries. The reasons are as follows: firstly, our country is"small government"; secondly, the tax structure gives priority to indirect taxes; thirdly, the scale of social security is narrow. Thirdly, counter-cyclical character is studied with structural budget balance. The results shows that discretional fiscal policy is counter-cyclical while economic cycle falls. While economic grows, discretional fiscal policy is counter-cyclical in the regimes where output gap is positive and is pro-cyclical in the regimes where output gap is negative.In chapter 4, non-linear effect of fiscal policy on economic growth is tested empirically. Firstly, test methods of non-linear effect are specified in detail. Secondly, MSVAR model used in this chapter is illustrated. Thirdly, non-linear effect of fiscal policy is tested and the results show that effects of fiscal policy on economic growth in China are non-linear. In the regimes, such as 1953-1982, 1987-1990 and 1994-1995, the effect of fiscal policy is non-Keynesian, which is resulted from shortage economy and government's quantity restrictions; While in the regimes: 1983-1986, 1991-1993 and 1996-2004, the effect of fiscal policy is Keynesian, when our economy is suffering from Inadequate effective demand. Finally, after retesting the reasons of non-linear effects from expectation views concluded in overseas literature, we find that initial fiscal conditions and magnitude of fiscal consolidations are not necessarily related to non-linear effects of fiscal policy.In chapter 5, non-linear effect of fiscal policy on private consumption is tested empirically. The results show that effects of fiscal policy on private consumption in China are non-linear, which is mainly from government consumption. In the regimes, such as 1978-1980 and 1984-1997, the effect os fiscal policy is non-Keynesian, but that is not significant. While in the regimes: 1981-1983, 1998-2004, effects of government consumption and tax on private consumption are Keynesian. Effect of government investment on private consumption is linear, but asymmetric. Initial fiscal conditions and magnitude of fiscal consolidations are not necessarily related to non-linear effects of fiscal policy.In chapter 6, new proof about discretionary fiscal policy is provided. Firstly, Keynesian effect of fiscal policy during 1996-2004 is retested with quarterly data and structural budget balance, the result shows that Expansionary fiscal policy in 1996-2004 stimulates economic growth effectively, that is , effect of fiscal policy in this regime is Keynesian. So some results in chapter 4 is believed to be true. Secondly, inflation effect of fiscal policy is tested, and the result shows that Discretionary fiscal policy has inflation effect. Expansionary fiscal policy makes price move upwards in short run, but the magnitude is small. Thirdly, asymmetry of fiscal policy effects on economic growth and inflation is tested, the results show that Effects of fiscal policy on economic growth and inflation are asymmetric, that is, effects of expansionary fiscal policy economic growth and inflation are much stronger than those of contractionary fiscal policy. Finally, sustainability of fiscal policy is tested, empirical result shows we know that fiscal policy at present is unsustainable, which suggests that it is right for our government to turn expansionary fiscal policy to the neutral one.
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