Macroeconomic Effects Of China's Fiscal Policies In A New Keynesian System

China's macroeconomic situation has kept ups and downs since the era of the reform and opening up.Fiscal policy demonstrates to the world with its flexibility and focalization by conducting discretionarily constantly.However,deviations emerged between implementing effects and initial intentions of fiscal policy for sometime.In response to the global economic crisis,the government introduced a lot of strong stimulus in late 2008,investing about 4 trillion yuan for a large number of infrastructure and industrial revitalization plans.Though proactive fiscal policy has continued for seven years,China's macroeconomy comes through a slowing growth,volatile price,excess capacity and the risk of debt accumulating,as well as many other sequelas.Full of engineering wisdom seemingly,why fiscal policy struggles to cope with the embarrassment?Traditional Keynesian framework for analyzing the total constant has been unable to make effective explanations for this.The current macroeconomic situation reminds scholars and practitioners of rethinking profoundly and discussing about the previous stimulus plans,as well as systematically reassessing the effects of fiscal policy.Thus,the paper constructs a new Keynesian dynamic stochastic general equilibrium model with microscopic basis,examining the effects of fiscal policy based on the structural perspectives,which is different from the traditional macro-econometric model based on aggregate analysis.The model considers two kinds of individual behaviors about the Ricardian and non-Ricardian residents and presumes that the economy has two kinds of price indexes which are respectively producer price index and consumer price index.Simultaneously,the model divides the government expenditures into investment-oriented spending,consuming-oriented spending,as well as transfer payments,and divides the total taxes into consumption tax,capital tax,as well as labor tax,forming a more systematic study framework about structural financial tools.The study finds that the macroeconomic effects of different financial instruments are significantly distinct.The tools should be evaluated differently and selected carefully while implementing financial macro-control.Also,simulation results show that the impact of tax-cutting is relatively better than expenditure expansion.The government should change the way of usual fiscal macro-control and gradually adjust from massive spending policy to structural tax-cutting policy on the occasion that the economy is slowing down,along with the expenditure-based stimulus policies working weakly.This paper argues that the government should further carry out the mode of Public-private Partnership,and spending priorities should be inclined to social security,health care,pension and public service as well,gradually promoting a more service-oriented government operating style;tax policy should be based primarily on consumption tax-cutting to effectively transform the demand structure of economy to a consumer-driven.