Studies On The Output Growth And Stability Effects Of China's Fiscal Policy

Since the Keynesian revolution,fiscal policy has not only been one of the focuses of economic theory research,but also the main tool used by the government for macro-regulation.Fiscal policy has an important impact on economic growth.It stimulates the rapid economic growth through the multiplier effect,at the same time maintains the stable operation of economy with its automatic stabilizer mechanism.However,economic stability and sustained growth are often difficult to achieve at the same time in practice.After the global economic crisis in 2008,we have faced a graver and more complicated environment in and outside China,and proactive fiscal policy has played a significant role in stimulating China's economic growth.However,due to the economic characteristics of China's large fiscal expenditures,the buffer effect of fiscal policy is not ideal.The strong stimulus fiscal policy with government investment as the main part caused the output growth to fluctuate greatly before 2013,and left many problems.The government makes the judgment that China is still in the digestion period of the early stimulus policy.China has stepped into the “new normal”,and the government's requirements for fiscal regulation and control are “greater intensity” and “performance enhancement”.Thus,this paper closely focuses on this requirement along the main line of fiscal policy to regulate economic growth.Based on the prominent contradictions and problems faced by China's current fiscal policy,this paper studies the output growth and stability effects of China's fiscal policy since the tax-sharing reform with scientific and objective analysis.At the same time,it targets to propose policy recommendations for China's fiscal policy to strengthen growth and stability effects of fiscal regulation on output growth and further improve the effectiveness of fiscal regulation.This paper attempts to answer the following questions in each empirical chapter:Under the reality of the distortion of China's fiscal expenditure structure,what is the relationship between fiscal expenditure structure and output growth? What is the problem with China's fiscal expenditure structure? What impacts these problems have on the output growth effects of China's fiscal policy? How should China's fiscal expenditure structure be optimized?In recent years,the frequency and intensity of China's policy regulation increase a lot,and policy uncertainty rise to a higher level.What is the relationship between output growth and policy uncertainty and how will policy regulation affect it? How will uncertainty of fiscal policy and monetary policy affect output growth?Under the reality of the contradiction between China's fiscal revenue and expenditure,has the discretionary intervention in fiscal policy really played a role in stabilizing output fluctuations? What is the role of fiscal policy in output stabilization in each policy regulation period? Has China's fiscal policy been effective in stabilizing output fluctuations?The government should increase the use of rule-based fiscal policy tools if discretionary intervention in fiscal policy fails.What kind of fiscal policy rules are more suitable for stabilizing output fluctuations? What kind of fiscal policy rules will effectively reduce social welfare losses? What is the performance of policy tools of different policy rules?The structure and contents of this paper are as follows:(1)The first chapter introduces the background and significance of the topic.Then this chapter introduces the main content of this study and some concepts related to the research.The second chapter reviews the theoretical and literature about the relationship between fiscal policy and output growth,which provides theoretical support and research implications for the following empirical analyses.(2)Considering the reality of unreasonable structure of China's fiscal expenditure and answering the first part of the questions,the third chapter discusses the impact of fiscal expenditure structure on output growth.The research in this part theoretically deduce the relationship between fiscal expenditure structure and output growth,then uses SV-TVP-FAVAR model to test the impact of service expenditure,consumptive expenditure and productive expenditure on output growth in the time of global economic crisis,the time after global economic crisis,and the time of the “new normal”.The results show that,the optimization of fiscal expenditure structure affects the growth rate of output in steady state.The output elasticity of government expenditure determines the optimal level of government expenditure.Once this optimal level is exceeded,expenditure will have a negative effect on economic growth and no longer have a “productive” attribute.In China,the effect of the three types of fiscal expenditure on output has improved significantly as time gose by,and has obvious time-varying and heterogeneity characteristics.The digestion period of the previous stimulus policy is far from over,and the productive expenditure does not play an ideal role in the time of the “new normal”.(3)Considering the reality of increasing policy uncertainty and answering the second part of the questions,The fourth chapter analyzes the impact of fiscal policy uncertainty on output growth.The research in this part firstly analyzes the relationship between policy uncertainty and output growth.Then this chapter uses SVAR model with stochastic volatility to study the impact of fiscal revenue policy uncertainty,fiscal expenditure policy uncertainty and monetary policy uncertainty on output growth.The results show that,in the “new normal”,China's policy uncertainty is higher,and economic growth shifts to lower speed.The relationship between policy uncertainty and output growth is weakened.Empirical results reveal that China's output is affected by the uncertainty of fiscal policy and monetary policy.The uncertainty of fiscal expenditure and monetary policy has positive impact on output while the uncertainty of fiscal policy has negative impact on output.The effect of fiscal expenditure policy uncertainty is the largest,followed by fiscal revenue policy uncertainty and monetary policy uncertainty.(4)Under China's government-led economic development mode,whether China's fiscal policy can effectively stabilize output growth remains to be studied.Therefore,the fifth chapter analyzes the impact of discretionary fiscal policy on output stabilization and policy effectiveness.The research in this part uses panel data model to examine the stabilization effect of structural deficit in different stages.Based on the regression results,the paper reveals the changing trend of fiscal policy effectiveness.The results show that the output stabilization effect of structural deficit is gradually weakening.Especially after 2008,when the structural contradictions of economy are prominent,policy intervention was not effective or even led to a larger output fluctuation.The proportion of province in the central and western regions is sensitive to changes in macroeconomic policy,which is not conducive to the development of the economy.The proportion of province in China with effective policy regulation has endured a sudden decline since 2003.For the economic environment is changing rapidly,the effectiveness of fiscal policy needs further improvement.(5)The previous analysis shows that the stabilization effect of discretionary fiscal policy is ineffective in China,so government should use more rule-based fiscal policy.The sixth chapter further establishes a new Keynesian DSGE model to analyze the stabilization effects of different fiscal policy rules and fiscal policy instruments under those rules.The fiscal policy rules in this part include rule focused on output gap,and rule focused on both output gap and government debt.The policy instruments include public consumption,public investment,consumption tax,personal income tax and capital tax.The results show that rule focuses on output gap is better.The fiscal policy rule focused on both output gap and government debt is not conducive for fiscal policy instruments to stabilize output fluctuations and reduce social welfare losses.Income tax policy is conducive to long-term development of the economy.It increases output,household consumption and private investment.The fiscal expenditure policy instruments can effectively reduce output fluctuations and social welfare losses under the fiscal policy rule of focusing on output gaps.Between the two fiscal expenditure policy instruments,public investment tool is the most effective.Base on China's situation,public investment decisions should be rule-based rather than discretionary.