A Research On The Relationship Between Fiscal Deficit And Economic Growth In China

Fiscal deficit is a phenomenon can be widely found in nearly all governmental budgets, regardless of the divergences in development stage and economic system. As the fiscal deficit is an important economic variable to the government during the macroeconomics control, the active fiscal policy is one of the most significant approaches in the macroeconomics control.The history of the fiscal deficit is not so long. During the economic crisis in 1930', it is the revolutionary Keynesian fiscal policy saved the economic from depression. Then the government was subsequently cognizant of the regulatory role the policy plays in macro-economic regulation. Although the Keynesianism has been challenged in practice and theory,it still has a profound influence, and the governments still believe in the predominant role of fiscal deficit. Since the financial crisis in 2008, expanding fiscal deficit has become the same measure for all the governments to counteract the economic recession. The seemingly similar incidents, however, conceal potential differences that deserve our analysis and calculation. The following questions have simultaneously aroused our concern. Namely, the role that fiscal deficit plays in regulating economic growth, the efficiency of fiscal deficit in promoting economic growth, the potential damage of fiscal deficit brings to economy and corresponding precautions to be taken.It is very necessary to think and explore these issues, and re-examine the relationship between the fiscal deficit and economic growth.To address these problems, the paper prioritizes the positive and negative impact that fiscal deficit has exerted on economic growth and analyzes such influence under the guidance of relevant theories in market demand and supply. Theoretical studies and practical tests help us reach a final conclusion concerning the relationship between fiscal deficit and economic growth.This paper consists five chapters according to the author, as follows: Chapter one introduces the background and significance of the topic choice, the basic theory of the fiscal deficit, and the summary of the existing research. Chapter two analyzes the mechanism of fiscal deficit and its influence on macroeconomics. This chapter gives a detailed analysis concerning the role of fiscal deficit in regulating market demand and market supply based upon economic theories. Chapter three searches in the effectiveness of the fiscal deficit when it acts on the economic growth, through discussing about the debt neutral, pull-in effect, pull-out effect and the pulling effect theories. Chapter four has an empirical test of the relationship between the fiscal deficit and the economic growth. First, it introduces the present state affairs of the fiscal deficit and the economics growth in china. Then it tests the effectiveness of the mechanism of the fiscal deficit affecting on the macroeconomics through examining the present private consumption and private investment in china. And finally, it tests the correlation between Chinese fiscal deficit and the economic growth, probing the effectiveness of the Chinese fiscal deficit policy. Chapter five puts forward some proposals to the practice in china. Despite the significant role fiscal deficit plays in economic growth, fiscal deficit is not entirely responsible for economic growth. Other relevant factors, say, debt risk, should also be taken into account. The paper tends to investigate fiscal deficit practice in China and is expected to provide constructive proposals in the long run.