Banking Credit Rationing,Fiscal Policy And Private Investment

Since1998, our government pay more and more attention to using fiscal policy tools to promote the sustained, rapid and healthy development of national economy,with the rapid growth of China's financial strength.We should clearly recognize that:fiscal policy always only play an indirect and auxiliary functions to the overall economic development.A successful fiscal policy should also be able to leverage private investment more effectively, and achieve fourmacro-policy objectives through robust and sustained private investment growth.Therefore, the first problem is to clarify the mechanism of the relationship between fiscal policy and private investment.Only after resolving this issue, it would be possible to work out the optimal fiscal policy to maximize the crowding-in effect on private investment.Mainstream academia mostly use the IS-LM theory on the research of the relationship between fiscal policy with private investment.But, the explaining forces and policy guiding significance of the IS-LM theory is far from satisfactory.On the one hand,the mainstream theory still can not reach a unanimous conclusion on the problem of whether and how much fiscal policy has crowding-in effect on private investment; the other hand, the IS-LM theory ignores credit rationing that exits widespread and impacts profoundly on the bank credit marketprofound. The assumption is too strong to the realities, and is likely to lead to a biased conclusions.Some of the seminal literature taking into account the importance of credit rationing factor in the analysis of fiscal policy on private investment.These studies in the modeling of financial markets, two basic assumptions, but only two basic assumptions are more closely tied to financial markets in developed countries, but not in line with developing countries, especially in the current stage of China's financial markets and bank creditthe fundamental characteristics of the market.Directly apply these models to analyze and guide our specific issues there is a big risk.There are some groundbreaking literature taking the importance of credit rationing into account in the analysis of fiscal policy impact on the importance of private investment.These studies' basic assumptions do fit well with developed countries,but do not fit well with developing countries, especially with China's financial markets and bank credit markets' fundamental characteristics.It would make a big mistake to use these model to analyse Chines problem directly.In this paper, the basic assumption of financial markets of the existing model has been amended to close the specific circumstances of developing countries in order to establish the developing country model for studying the relevance of fiscal policy, private investment and banking credit rationing among in developing countries.Inferencing based on developing country model, the paper makes two basic propositions.The propositions reveals the the relationship between the impact of fiscal policy on private investment and the degree of the banking sector credit rationing will show a typical nonlinear characteristics.Namely, the relationship is a kind of positive one. And this correlation mechanism will be affeted by the level of development of alternative financing channels.To make the conclusion of the developing countries more precise, this paper establishes a four-sector general equilibrium model with family, firm, banks and government to deepen the analysis of related issues.The two propositions derived in developing country model are further consolidate by the four-sector general equilibrium model.The empirical part of the paper using the panel data of the national mainland in30provinces, municipalities and autonomous regions (excluding Tibet),applies panel threshold cointegration model (PTCM) to test two basic propositions.PTCM estimates (including sensitivity analysis)with the data for the whole country, and for the three regions including the East, the Mid,and the West, shows the relationship between the impact of fiscal policy on private investment and the degree of the banking sector credit rationing will show a typical postive characteristics, which verifies Proposition1; the extent of the development of alternative sources of financing of the three regions from low to high is the Mid, the West,and the East,and the crowding in effect of fiscal policy on private investment form high to low to keep the same order (including sensitivity analysis), which proves Proposition2.The theoretical and empirical analysis of the paper explains the mechanisms among Chinese bank credit rationing, fiscal policy and domestic private investment, which could not exist without the current level of backward development degree of Chinese financial industry.This paper gives a relatively complete set of policy recommendations from the short-term and long-term two levels, in order to upgrading the crowding in effects of fiscal policy on private investment.The short-term policy recommendations comprises the problem the timing of financial policies and the reasonable match between fiscal policy and other macro-control means.The in-depth discuss on these issues will help achieve better fiscal policy effects.Paper is divided into seven chapters, Chapters1-4is the theoretical part, including the Introduction, the relevant literature review, theoretical analysis and the study described, Chapters5-6is the empirical analysis section, Chapter7gives the conclusions, policy recommendations and research outlook.The probably innovations in this article have the following: to establish the developing countries model.(1) This paper amend the basic assumption of financial markets of the existing literature to meet the basic characteristics of the developing countries.On this basis, this paper re-interpretates the mechanism of fiscal policy, private investment and banking credit rationing among in developing countries,and draws two basic propositions.Proposition1:The overall policy effects of fiscal policy on private investment in developing countries shows some obvious non-linear characteristics.namely the positive relationship between the impact of fiscal policy on private investment and the degree of the banking sector credit rationing will show a typical positive characteristics.And degree of change of the banking sector credit rationing is the root cause for the nonlinear characteristics.This proposition is contrary to the main conclusions of the developed countries model;Proposition2:The relationship between the crowding in effect of financial expenditure on private investment and bank credit rationing degree will be affected by the level of development of alternative financing channels.Namely, under roughly same bank credit rationing conditions, if the development degree of alternative financing channels in developing countries or regions are different, the relationship between the impact of fiscal policy on private investment and the development degree of alternative financing channels will show a typical negative characteristics.;(2) to build a four-sector general equilibrium model with family, firm, banks and government. This article learns and develops the three-sector general equilibrium model with family, firm, banks proposed by Freixas and Rochet (2008),and build a four-sector general equilibrium model with family, firm, banks and government which further refines and expands the conclusions reached by in the developing country model;2. to improve the existing panel threshold cointegration model.This paper learns and amends on the basis of the model proposed by Ouyang Zhigang (2008):(1) to use Kao panel cointegration test to replace the panel cointegration tests proposed by Choi and Saikkonen (2005);(2) to use more effective bootstrap method instead of the Monte Carlo simulation on thresholds threshold estimates.