The Empirical Research For Dynamic Reactive Mechanism And Validity Of Active Fiscal Policy In China

Disputes over the effectiveness on fiscal policy are always the hot topics in circle of macroeconomics. We make a close empirical research on active fiscal policy in our country, and bring up some advice in accordance with the present economic situation.In this article, chapter 1 gives a brief introduction to fiscal policy firstly, then lists some viewpoints of the West Economists on fiscal policy, and lastly, reviews our country's fiscal policies in implementation since reform and open-up. During the past 20 years since then, our government's macro- controlling to fiscal policy have obviously transformed. After experiencing the transformation from planned economy to market economy, the developing tendency of national economy become better and better. In 1998, confronting with the problems of insufficient domestic demand and deflation, our government issued active fiscal policy, so as to accelerate national economy to develop steadily and healthily.Chapter 2 mainly gives theoretical analysis and empirical research to effectiveness of active fiscal policy on the basis of Keynesian gross-demand theory and Ricardian Equivalence Proposition. Keynesian gross-demand theory is the foundation of macroeconomics. We apply dynamic IS-LM model to analyzing the mechanism of our country's active fiscal policy, qualitatively illustrating the effectiveness for our country to carry out this policy. The Rational Expectations School put forward Policy-Neutrality Proposition, which resists Keynesian gross-demand theory. Lucas came to conclusion that the monetary policy and fiscal policy were invalid through creating a rational expectancy macro-model composed of accumulative supply curve, equilibrium curve of monetary market and Lucas supply function. Ricardian Equivalence Proposition is important for fiscal policy, which embodies the idea that the economic effect is same for government to finance by debts or by tax. The consumption model based on life-cycle hypothesis and permanent income hypothesis drove a conclusion that the first-order condition of individual utility maximization is: So proved Ricardian Equivalence Proposition: Under the given expenditure path, the consumption path of individuals will not be influenced by financing way of government. Utilizing VAR model to test Ricardian Equivalence Proposition in our country, we analyze the effectiveness for our country to strengthen domestic demand by active fiscal policy. VAR model has overcome the defect that the traditional regression models are restrained by unidirectional causality, so it is a strong tool to analyze policy implementation, policy transmission and policy time-lag. We set up VAR model which includes the output, consumption, fiscal expenditure and tax revenue, and the fiscal variables' dynamic effect to output and consumption can be analyzed through impulse response. Comparative analysis of fiscal expenditure shock and tax revenue shock drove a conclusion that, the valid term of tax policy is limited and apt to cause violent fluctuations in output, so tax policy is unfavorable to sustain the stable development of economy. Compared with this, increasing fiscal expenditure can bring longer expansionary effect to the output, and doesn't exsit repeated fluctuations, so the active fiscal policy which taking expanding government expenditure as the main instrument can effectively accelerate the economic growth of our country, Ricardian Equivalence Proposition is untenable.Chapter 3 mainly gives empirical test to the possibly contractionary effects of active fiscal policy. The expansionary effects of active fiscal policy depend on the phases of business cycle. Active fiscal policy may have the contractionary effects on the real output through the channels of interest rate and exchange rate. We mainly analyze the pattern of short-term fluctuations and the relation of long-term equilibrium between money demand and real output, of which the fundation is relatively exact estimating the long-term money demand function:By measuring the elastic...