The Evolution Of Fiscal Policy Theory And Practice In The United States Since The 1990s

Fiscal policy plays an important role in macro-control policies. In order to achieve the goal such as full employment, price stability, the international balance of payments and stable economic growth, the government of the United States is usually used the policy tools that including the budget, taxes, government purchases and transfer payments. The evolution of the American fiscal policy can be divided into three stages: before 1970s, from late 1970s to early 1990s and 1990s till now.The Great Depression in 1929 resulted in the rise of Keynesianism. The core principle of Keynesianism is adopting active government intervention to solve the serious problem of unemployment and depression. Keynes (1936) advocated reducing taxation, borrowing bonds, adopting a deficit budget and actively expanding government spending to expand aggregate demand. Roosevelt's New Deal adopted a series of measures which are similar to the Keynesian theory of expansionary fiscal policy, in essence, a "start water" policy. After World War II American economy emerged business cycle fluctuations: from prosperity to recession. In this situation, the United States Government adopted Hansen's "compensatory fiscal policy" from1946 to 1961. In Hansen's (1941) opinion, adopting expansionary fiscal policy and tightening fiscal policy alternately was feasible. The use of "compensatory" fiscal policy for acting against the economic cycle was very flexible in the Truman and Eisenhower era. However, "Eisenhower stagnation" which showed slow economic growth emerged. In order to overcome the "Eisenhower stagnation", accelerate economic growth and maintain the hegemonic position of the United States Kennedy began to pursue a "growth" of the financial policy with the help of Neo-classical synthesis. Helena (1969) who is the Representative of Neo-classical synthesis thought, it should be adopting expansionary fiscal policy to stimulate economic growth not only in the Depression-era but also in the economic recovery period, as long as the actual output levels below the full employment level. In a normal economic period Kennedy also adopt deficit fiscal policies to stimulate economic growth. The president Johnson took the United States to the road of the welfare state. Early 1970s, the United States economy emerged "stagflation." Nixon, Ford, Carter failed to resolve this issue. This "stagflation" was a situation which Keynesian economic theory could not explain. Monetarism holds that the "stagflation" is the result of deficit fiscal policies; advocates "single" rules of monetary policy, but the policy recommendations had not been truly realized. Supply-side School favors supply management policies, such as tax cuts to solve the economic problems of stagflation. On the one hand, reduce taxation and government expenditure, on the other hand, implement balanced budget. According to the theory and policy of Supply-side School Reagan administration put forward an "economic recovery plan", and reform the taxation system. All of these measures stimulated economic growth, but had a serious deficit problem. The elder Bush who took office later also failed to solve the fiscal deficit problem.In the 1990s the United States sustained economic growth and emerged"New Economy", a post-war economic growth lasted the longest time period. During this period, not only the American finance changed successfully from deficit to surplus, but also the economy grew speedily, had low inflation rates and low unemployment rates. Besides, the country's innovative ability and competitiveness had markedly increased. New Economy in the United States is the success of Clinton Economics. Clinton Economics include theory and policy recommendations of the New Keynesianism. The main content of Clinton Economics includes that in order to achieve the target of full employment and economic growth government must intervene in the economy, especially the financial intervention. Clinton Economics emphasizes "the Government's participation in the economy" which is the Keynesian theory, absorbing New Keynesianism and New Liberalism. New Keynesianism is the basis of Clinton Economics. Endogenous growth theory think: long-term economic growth depends on the acquisition of new knowledge and practice in the production and application of this provision of adequate power, fiscal policy to promote long-term economic growth with an emphasis on external investment such as human capital, infrastructure, R&D and so on. Clinton administration implemented tightening fiscal policy which was to increase the potential for economic growth and reduce non-productive expenditure for reducing the fiscal deficit further. This kind of fiscal policy had obvious structural features. To increase employment opportunities, Clinton administration adopted a short-term expansionary fiscal policy. In order to reduce the fiscal deficit and government debt Clinton administration increased or decreased in the tax revenue and formulated a plan to reduce government expenditures. In addition, the reform of the social security system to reduce the fiscal deficit has played a significant role. Clinton administration not only increased"capital expenditure"aimed at enhancing endogenous forces of economic development, but also adopted financial policies bias towards high-tech industries.When the president Bush came to power, he hold the banner of tax cuts, went to war against terrorism and greatly increased defense spending which is based on Supply-side School fiscal policy. Thus, many people believe that Bush revitalize Reagan Economics. The core of Reagan Economics is use Supply-side School fiscal policy to solve the problem of economic recession and high unemployment rate. It is through tax cuts to stimulate investment and efficiency, promote economic development and increase employment opportunities. Bush administration formulated a plan that in 10-year reduce about 1.6447 trillion US dollars tax. At the same time, according to the theory of Rational Expectations School, Bush tries his best to make tax cuts permanently. Tax cuts expansionary fiscal policy stimulate consumption and increased economic growth, but the Bush administration's tax cut plan is conducive to the wealthiest strata, not conducive to social equity. Bush has launched wars in Afghanistan and Iraq, increasing military spending and leading to a budget deficit. In addition, Bush also focused on promoting education, social security and health care system reform.The evolution of fiscal policy in America is very enlightening for our country. First of all, according to different economic situations, we should adopt appropriate fiscal policy. Secondly, we should oppose the long-term deficit, uphold the long-term moderate tight fiscal policy and take road of "super-naturally balanced budget" which is based on continued economic development. Finally, we should make full use of fiscal policy such as taxes and transfer payments to adjust income distribution gap, increase the income level of residents, private consumption and investment.