On China's Proactive Fiscal Policy To Fade And The Implementation Of Sound Fiscal Policy

Positive fiscal policy-which by its nature a kind of expanding fiscal policy-has been adopted since 1998. It was a great turning point in the construction of the marketing economy with Chinese characteristics as a measure of macroeconomic control. Taking the lack of needs and inflation after the great Asian financial crisis of 1997 into account, Chinese government adopt the policy with great caution. However, all kinds of Macroeconomic policies are adopted under certain circumstances, and their effects depend on time and place. Without necessary conditions, it is impossible for them to effectively function. As a measure of macroeconomic control which has been adopted for consecutive 6 years, the outside environment for the positive fiscal policy is quite different compared with what it used to be years ago. Those changes will lead to invisible utility in the economy if the policy is still adopted.In the part of empirical analysis, firstly from the analysis of the service rate of public debt, the dependent degree of central fiscal sector and burden of public debt, we can see that the scale of public debt and deficit will be more great if the positive fiscal policy is still adopted. And it will cause unemployment, inflation and even recession consequently. This is the price of macro regulation to the economic. At present, in despite of all data show that the enlargement of the scale public debt has not yet cause fiscal risk, we must take measures actively to defend it. Then this paper proves that the very important theory of Ricardian equivalence fails to succeed in China. Afterwards this paper tests the risk of positive fiscal policy. Firstly from the result of a continuous-time optimizing overlapping generations model, I can prove that a fiscal expansion financed by bond issues and future taxes increases the long-run real interest rate. The nominal price level has to rise to restore equilibrium in the money market. The price increase occurs even when the money stock is fixed. Secondly this paper uses VAR to test the risk of positive fiscal policy. The result shows that there is a marked co-integration among all variables, And it was just in this equilibrium, the existence of positive fiscal policy produce an obvious deflation effect to the supply of currency and real GDP. The existence of this deflation effect shows that the crowding out effect of positive fiscal policy still exist to the supply of investment of private agent through system of interest rate and exchange rate. The deflation effect does not incarnate further because the system of interest rate and exchange rate has not marketed. So positive fiscal policy must fade out before the deflation effect appears in the long run. If not, positive fiscal policy will form risk of fiscal policy, increase indeterminacy of policy anticipation, produce fluctuation of economy and loss of welfare. Thirdly, this paper uses S-S model to estimate the coefficient of time varying elasticity to prove that positive fiscal policy can lead to high inflation.At the end of this paper, I summarize whole paper and introduces moderate fiscal policy briefly.