The Effect Analysis Of Finance Deficit Act On Domestic Demand

In this paper, China’s fiscal policy measures have taken by the Government that started form different economic development situation, and found that during the practice of regulate macroeconomic and stabilize China’s economic development, in addition to a small amount of balances in few years, financial deficit mainly shows a normalization economic phenomena in the rest of the year, and the size of the deficit showing a trend of continuous growth. Corresponding with the continuous growth of deficit, Chinese economic achieve a steady and healthy development, domestic demand is rising gradually, consumption demand and investment demand become important parts of making contribution to GDP growth, the consumption rate and the investment rate both remained at high level are the best proof of this. But from the entire development history, although consumption and investment are in a dynamic growth process, its consumption rate roughly showing a downward trend change, on the contrary, its investment rate has run in the rising channel. The asynchronous development of Consumer demand and investment demand help find the reason of the structure imbalance of domestic total demand, at the same time, it shows the difference of fiscal policy to stimulate consumption demand and investment demand. Except the different deficit spending, the different effect on consumer demand and investment demand can also be the reason lead to the difference.Analysis from the point of theoretical effect, the fiscal deficit has significant multiplier effect,squeeze into/out effect and expectant effect in its forming process. By promoting the Government’s own consumption and investment demand, vectoring the indirect effects of market interest, and stimulating private consumption and private investment, achieve the target of promoting domestic demand growth. At the same time, by inducing inflation, policy imbalances caused structural contradictions in domestic demand, the continued expansion of the deficit scale reduce the confidence of the market, financial deficit curb domestic demand. To illustrate the actual impact of the existence deficit to consumption demand and investment demand, a VAR model is made for empirical analysis and Granger causality test is used to test the causation between deficit rate and inflation rates.In the sight of conclusion from empirical research, although in the short term, the present of the deficit could become a major means to develop social and economic, does not cause inflation rise, and will also not enhance the level of market interest rate. In the long term, due to its counter-cyclical forming characteristic, combined with its negative consequences of fiscal revenue over expenditure, making it likely to cause greater volatility in inflation, and in the long term, the deficit effect to social consumer demand is not obvious, but more positive effect to investment demand, which lead to unbalanced development of consumer demand and investment demand, causing structural distortions in China’s domestic demand market. So based on the practical experience from developed countries and regions, we render that in the short term should keep financial deficit proper and controllable. But in the long term,we have to keep a balance between the revenue and expenditure, reduce the financial risk, in order to balance the domestic market demand and promote economic develop sustainably.