Research On The Relation Between Fiscal Revenue And Expenditure In China Based On Nonlinear Granger Causality Test

The scale of fiscal revenue and expenditure in China has increased substantially with the rapid development of economy.However,due to the relatively rapid growth of expenditure,the current fiscal revenue fails to match the demand of fiscal expenditure,leading to the serious fiscal deficit in China.In order to study the relationship between fiscal revenue and expenditure and the focus of government macro-control,firstly,this paper expounds the seriousness of China's fiscal deficit and the necessity of studying the relationship between fiscal revenue and expenditure.Then the previous studies on the relationship between fiscal revenue and expenditure and the nonlinear effect of fiscal policies are summarized.After that,Monte Carlo Simulation was used to screen the parameter assignment of the nonlinear Granger causality test.Finally,the annual data of fiscal revenue and fiscal expenditure from 1978 to 2017 were used to study the linear and non-linear causal relationship between fiscal revenue and expenditure.The empirical results of this paper show that there is a long-term equilibrium cointegration relationship and nonlinear dynamic relationship between fiscal revenue and fiscal expenditure in China.The result of the linear Granger causality test shows that fiscal revenue is the Granger cause of fiscal expenditure,and the relationship between fiscal revenue and expenditure is consistent with the hypothesis of "tax-andspend".After eliminated the linear relationship between sequences with the Error Correction Model,BDS test was used to test the residual series.The results show that there is a significant nonlinear structural feature.Then the nonlinear Granger causality test was used to study the fiscal revenue and expenditure relationship in China.The result shows that there is a mutual causal relationship between China's fiscal revenue and expenditure,which is consistent with the "fiscal synchronization" hypothesis.Based on the empirical results of linear and nonlinear granger causality tests,it is concluded that the relationship between China's fiscal revenue and expenditure is consistent with the hypothesis of "fiscal synchronization" on the whole.Under the premise that the fiscal revenue and expenditure relationship is in line with the "fiscal synchronization" hypothesis,to alleviate the fiscal deficit problem,the government should be cautious in making decisions to unilaterally regulate taxes or expenditures.Because adjusting one party can significantly affect the other party,the time offset of fiscal revenue and expenditure affects the temporary surplus or deficit that is easy to cause,which deserves attention.This means that in this context,to alleviate the fiscal deficit problem,the government needs to make overall plans and make decisions on both fiscal revenue and expenditure.