Economic Growth, Poverty Reduction And Fisical Policy: A D-CGE Model Of China

The Chinese government has been pursuing rapid economic growth for a long time.However, after the world financial crisis in2008, the Chinese economy slowed downbecause of the external shock of the global economic recession, which made the governmentfacing new challenges in economic policy formulation to maintain reasonable and stableeconomic growth. Moreover, Chinese government seems to have underestimated theseriousness of poverty. According to international standards of the poverty line, China rankssecond. Social inequality is worsening for the rapid development of economy, and theincome gap between the regions has also reached a very high level. Therefore policy makersurgently need to make changes. Fiscal policy, which includes fiscal expenditure and taxrevenue policy instruments, would be a good choice. The government can make full use of itto ensure the normal operation of macro-economy and adjust the economic structure.The thesis, funded by National Natural Science Fund Committee, studies on theDynamic CGE modeling technology and its specific application, which includes two parts.First, this thesis studies on both the recursive dynamic CGE model of Keynes closure forChina and SAM’s updating, balancing methods; second, it simulates two type of fiscal policy,4-trillion fiscal stimulus package between2009-2010and individual income tax reform,giving directional advises to Chinese fiscal policy choices during transition period.First, based on IO tables in2007, and combined with various statistical yearbooks andother relevant data, we establish the macro-SAM table in2007. And on this basis, we refineit to get the original19departments, three categories of labor, and12groups of residents’microeconomic SAM. In addition, we elaborate the defects of the original SAM, andprovides motivation for researches of updating data and balanced approach.Second, we launched an in-depth study on SAM processing technology. Knowing theasymmetry defects of existing update methods and restrictions of non-negative matrixelements, the thesis proposed new JSD approaches based on information theory withsign-preservation and tolerance extensions, provide a comprehensive set of framework of updating matrix, and prove the excellent properties of JSD approaches by empirical study.Similarly, we proposed extended SG-RAS approaches on the basis of the random CE andGRAS methods, and empirically tested the pros and cons of the method, which confirms itspractical value. This paper then uses the SG-RAS method to finish the balancing work onoriginal2007SAM. The research on data processing technology, as one of the mostfundamental parts of the CGE analysis framework, fully ensures the quality of subsequentCGE model’s data, and provides necessary protections for the accuracy of simulation results.Third, we build the static and recursive dynamic CGE models which are suitable forChinese fiscal policy analysis by two steps. The first step is to establish a Chinese staticmodel of Keynesian structure based on IFPRI standardized model, and test the correctness ofmodel constructure. The second step is to construct recursive CGE model, and implement allmodel codes by using the GAMS software, which provide a complete set of scalable analysisframework, prepare for subsequent analog applications of fiscal policies, and also provide areference for similar studies, from defining structure, mathematical equations’ system to thesoftware achievement.Fourth, we made a simulation using two types of domestic fiscal policy-4trillion and taxreform, and got several conclusions of research analysis based on simulation results afterestablishing the model. The simulation analysis of the financial investment spending provesthat,4trillion investment program from2009to2010can boost GDP by about1.2-1.4%each year. The economic growth effect was significant, which also produced a considerableamount of private consumption, and made the situation of absolute poverty and relativepoverty worse. Divided by sectors, the three departments of the public administration andsocial organizations, education and water conservancy, environment and public facilitiesmanagement industry, produced the higher efficiency of the government investmentspending. However, real estate, mining and electricity produced the worst effects, especiallyin the real estate industry. The financial investment should pay attention to this critical factorin the future structural adjustment. Moreover, the analog analysis of tax reform found that anappropriate increase in the exemption amount can adjust relative well-beings of the residents,and ease the relative poverty. But if the exemption amount is too high, it would make the income inequality worse, which departs from the original intention of the reform. Thecombination of the tax rate and exemption amount is superior to increase the exemptionamount alone, but it is regressive. But if we apply integrated income tax system reform, wecan still reduce poverty significantly and alleviate inequality even in a tax loss of2.7%.Finally, the dissertation makes a conclusion on both theoretical research and empiricalsimulation of CGE modeling, points out the direction of the future development, clarifies thelimitations and shortcomings of current researches, then provides suggestions forimprovement of academic researches of CGE.