Output Stabilization Effect Of China's Fiscal Policy

Output stabilization effect of fiscal policy has been widely concerned by western economic theory of main schools and belongs to one of the key contents of the theoretical research on fiscal policy in the world.There are many inconsistencies and contradictions in the literatures now.By exploring the size and stage changes of the output stabilization effect of fiscal policy in China,we can more accurately judge the validity of the output stabilization effect of China's fiscal policy and determine whether the output stabilization effect of China's fiscal policy has been improved with the system reform and development.Based on this background,this paper gives a study on output stabilization effect of fiscal policy in China.According to the different mechanisms of action,fiscal policy will be discussed in light of those three dimensions,namely:automatic stabilizers,the cyclical fiscal policy and the exogenous discretionary fiscal policy.Next,the potential output,output gap and output stability are estimated by HP filter.On this basis,we calculated the cyclicallyadjusted balance(CAB)from the overall balance.We estimated the cyclical fiscal policy and the exogenous discretionary fiscal policy of provinces at different periods according to their CAB.Then,this thesis used entity fixed effects regression model of provinces panel data during the period of 1992-2017 and Instrumental variable method to empirically test the levels and changes of automatic stabilizers,the cyclical fiscal policy and the exogenous discretionary fiscal policy in China.Finally,we made a robustness test to the study model according to the level of government scale and GDP per capita.The main findings including:(1)At the level of provincial governments,automatic stabilizers significantly reduces the degree of output fluctuation.However,this effect wear off over time.The reason is that,although the expansion of government scale benefits the automatic stabilizers function,the grouping test of government scale shows that too large scale of government is prone to the destabilizing external impact,weakening the stable effect of fiscal policy.(2)Economic openness significantly affects the strength of automatic stabilizers effect.A higher level of economic openness is accompanied by a stronger automatic stabilizers effect,but the direct impact of the level of economic openness on the volatility of output tends to increase output fluctuations.Because of the financial accelerator effect,financial development destroys the stability of output.(3)The cyclical fiscal policy reduces the fluctuation degree of output in China.(4)The exogenous discretionary fiscal policy significantly reduces the degree of output fluctuation.And the counter-cyclical of exogenous discretionary fiscal policy become more pronounced.The reason is that according to the grouping test of GDP per capita,regions with a higher level of economic development have more perfect fiscal system,strong fiscal expenditure control and tax collection ability,and are less likely to face tight credit constraints in economic recession.From the above discussions,a series of policies are proposed.They are summarized as follows.The government should control the size of government reasonably;In order to achieve output stability,the government not only need to use automatic stabilizers,but also discretionary fiscal policies,especially for economic fluctuations caused by emergencies;We should raise the level of economic development,strengthen fiscal expenditure control and tax collection capabilities,ensure the rationality of the deficit structure,reduce the possibility of tight credit constraints in an economic recession,and ensure the implementation of discretionary fiscal policies;The government should reform the regional financial system and enhance inherent stability.For example,we should enhance the sensitivity of tax revenue to the fluctuation of national income and increase the proportion of counter-cyclical spending on social security and save a certain proportion of the financial surplus during the boom years,etc.