Research On Cyclicality And Effectiveness Of Fiscal Policy

Fiscal policy is composed of a series of counter-cyclical fiscal measures took by governmentfor smoothing macroeconomic cycle and volatility. It has been used to achieve political, economic,and social development goals through fiscal revenue, expenditure, borrowing and other policies ina certain period. In recent years, although many scholars and experts have analyzed and studiedthe influence of fiscal policy on economic operation from different point of view, these studiesmainly focus on effectiveness and cyclicality of fiscal policy, the results were not consistent.Nonetheless, in practice, the governments use fiscal policy as an important means of interventionand economic management. By studying on effectiveness and cyclicality of fiscal policy, thisarticle reveals the effects and principles of the impact of fiscal policy, so that we can get thecorresponding economic policy enlightenments and recommendations.In the process of research papers mainly considered and solved the following questions:This article sum up the main viewpoints of the theory of fiscal policy in the western countries,introduced research results of scholars at home and abroad on effectiveness and cyclicality offiscal policy. At the same time, it described Chinese general framework of fiscal policy system,introduced the fiscal policy practice since the Reform an Opening-up.Then, We use Euler Equation to test the Ricardian Equivalence. In the presence of liquidityconstraints, the Ricardian equivalence will become invalid, which means fiscal policy hasimportant demand effect. At the same time, it provided empirical evidence supports to implementof fiscal policy in the contraction period. Then by the analysis of impulse response curve and theinvestment equation, we thought the growth of investment in fixed assets was not significantresponse to the growth of government expenditure, fiscal policy had no crowd-out effect oninvestment in fixed. The Granger causality between the series of fiscal expenditure growth and thegrowth of value added industrial growth indicates that there is a two-way Granger affect relations,it means that Chinese fiscal policy is effective.In Chapter4, the results of Unit Root Test shows, the sequence of fiscal revenue andexpenditure are instability. The nature of the fiscal revenue and government taxes revenue aresimilar, both of them are I(1) series. The fiscal expenditure sequence showed stronger sustained,its order of integration is2. The orders of integration for expenditures and revenues sequence aredifferent, so there is no common trend between fiscal expenditure and revenue sequence. It showed Chinese fiscal expenditure and revenue are not synchronized to a certain extent.By viewing through data, the cyclical component of output and fiscal revenue appearsagreement and synchronization. But fiscal revenue changing frequency will be greater by the otherfactors in cyclical sequence. Fiscal expenditure and the economic cycle fluctuation showed strongdependence in short term. It demonstrated that fiscal policy can only change macroeconomicsituation in short time, which had important significance for smooth the fluctuation of economiccycles. However, fiscal policy cannot affect the long term fluctuation trend of economic growth;namely, it has few impacts on the endogenous growth mechanism.Based on the sign constraints of the impulse response function and orthogonality assumption,we identify two basic fiscal shocks. From the effect of fiscal expenditure impulse vector to themacroeconomic variables, it shows fiscal expenditure can promote the output, but has strongcrowd-out effect on consumption. As to the investments, fiscal policy has not significantcrowd-out effect on fixed investment. In contrast, empirical analysis shows that China’s fiscalexpenditure policy has crowed-in effect on social investment.According to analysis of the term structure of the public debts, China should continue topromote bonds varieties and encourage different types of investors, and finally gradually establisha unified national debt market. Besides, regulators should try to encourage financial derivativesand perfect the supporting system for the term structure of public debt, which in turn to exert therole of macro-control and financial by national debt. Investigating European debt crisis from theperspective of fiscal policy, we find that fiscal policy must be coordinate effectively withmonetary policy that should be play a greater role, at the same time, we must pay attention to therisk of the deficit size, the behavior of fiscal authority, the structure of expenditures.