The Study On The Relationship Between Fiscal Policy And Economic Growth In China

The regulation function of fiscal policy on the macro-economy is strong as wellas the monetary policy. After the reform and opening up, Chinese government hasadopted corresponding policies based on the specific characteristics of differenthistorical stages in China, which all played a significant role on the economyadjustment. Especially when facing the financial crisis in2008, Chinese governmentagain implemented proactive fiscal policies and prudent monetary policies, whichpositively effected on the economic recovery. However after economic growthresumes, it has been crucial that whether to change the fiscal policy and how to adjustthose policies. Therefore the study on the relationship between the fiscal policy andthe economic growth has important theoretical and practical significance.This article mainly studies on the relationship between fiscal policy andeconomic growth. Among the selected variables, GDP is a quarterly data, while thefiscal expenditure which includes money supply and price index is a monthly data. Inorder to build the estimable common-frequency VAR model, previous studiesalways abandoned some high-frequency information, which unavoidably resulted inthe outcome bias in that information with different frequencies have respectiveuniqueness and trends. This article makes the best of the observable data andhigh-frequency information and introduces the mixing vector autoregressive modelbased on bayesian method so as to avoid information loss. Meanwhile by comparingwith the results of common-frequency data, it has been approved that resultsestimated from mixed-frequency data is superior to that of common-frequency dataand that estimation based on making the best of obtainable information is moreeffective. This article also confirms that the impact of GDP can positively influenceon the fiscal expenditure, which verifies that Wagner’s Law is true in China from 1996to2012. It has also been approved that with the continuous development of oureconomy, the fiscal expenditure gradually increases, the status of government in theeconomy improves, but the expansion of fiscal expenditure will negatively effects onthe economic growth. Thus it can be seen that our economy is becoming mature since1996. Implementing the proactive fiscal policy in long term will cause financial riskssuch as inflation, high deficit and so on far from promoting the economic growth.Therefore the government should implement prudent fiscal policy so as to maintainthe long-term stable economic development when economic catastrophes includingwar, financial crisis or disaster do not occur.This article is divided into four chapters. The first chapter introduces thesignificance and background knowledge of the topic and summarizes representativestandpoints of western and Chinese scholars on the fiscal policy and economicdevelopment. The second chapter introduces the theories of the relationship betweenfiscal policy and economic development, including Wagner’s Law, fiscal policy ofendogenous growth theory, crowding-out effect, multiplier effect and the fiscal policytheory of Keynesian school. The third chapter introduces MF-VAR model and somecalculation methods like Gibbs sampling. Last but not the least, the last chaptercarries on the empirical study on the fiscal policy and economic growth base on themixed-frequency information and concretely verifies the relationship of our fiscalexpenditure and economic growth. Meanwhile, the last chapter also makes asummary and gives policy recommendations after obtaining the empirical results.