Effect Analysis Of Chinas’ Proactive Fiscal Policy In Financial Crisis

In our country’s historical process of fiscal policy, China has implemented proactivefiscal policy twice because of international shock. In1998, China implemented proactivefiscal policy for the first time after the Southeast Asian financial crisis in1997. Theproactive policy has lasted7years since1998, and then it shifted to prudent fiscal policyin2005. At the end of2008, as a response to the global financial crisis caused byAmerican subprime crisis, China implemented proactive fiscal policy once again. Chinaintroduced ten industrial restructuring and revitalization plan rapidly, with ten measuresof expanding domestic demand and promoting economic growth,4trillion investmentplan, a structural tax cut and so on.In recent years, under the common action of proactive fiscal policy and othermacroeconomic policies, China economy rises steadily with some problems like inflationrisk at the same time. Due to the delay of fiscal policy, crowding-out effect and debt riskmay appear gradually. Therefore, in the complex case of the situation at home and abroad,on one hand the current fiscal policy of China should continue to maintain economicgrowth, on the other hand also need to guard against the negative effects likecrowding-out effect, inflation and debt risk. In this context, the dissertation will analyzethe increasing effect, crowding-out effect and risk effect of China’s current proactivefiscal policy systematically through the methods of theoretical analysis, empiricalanalysis, comparative analysis and inductive summarization, and on this basis, putforward some specific measures in order to adjust and improve the current policy.The economic effect of proactive fiscal policy is discussed as a whole firstly in thedissertation, and then the evolution and implementation of fiscal policy since1998issummarized and analyzed. It includes two proactive fiscal policices and a prudent fiscalpolicy. In the thesis, the background of policy and main measures are compared. Inaddition, the effect of current proactive fiscal policy and the effect and problems ofproactive fiscal policy in1998are summed up. The next part is the core part of the thesis, and it is also the analysis and evaluation ofeconomic effect. Firstly, the analysis of increasing effect includes the expansion ofgovernment spending and the policy of tax cut promoting economic growth, the proactivefiscal policy on investment and consumption pulling effect, and the analysis of multipliereffect. On the whole, in the process of controlling economic operation with fiscal policyfrom1998, changing the government spending is the main method, and the governmentspending on the economy pulling effect is remarkable. In this period, China’s proactivefiscal policy on total investment effect is obvious, but the marginal propensity toconsume of residents is low. Through the analysis of multiplier effect, according to thenational economy contribution of fiscal policy, the proactive fiscal policy promotes theeconomic growth overall. However, the effect of proactive fiscal policy appears toweaken in2010. Secondly, the analysis of crowding-out effect includes the theoreticalanalysis of IS-LM model and Ramsey model, and the empirical test between folkinvestment growth rate and government spending growth rate. The result shows thatChina’s proactive fiscal policy in financial crisis has a certain degree of crowding-outeffect to folk investment. But this effect is not caused by rising interest rates, and it isshowen by funds competition between the expansion of government spending and folkinvestment directly. The possible reason is that China ’s interest rate marketizationmechanism is not perfect, and the change of central bank interest rate is very difficult toplay an indication signal role in the capital market. Therefore, the relationship betweengovernment spending and folk investment described by Ramsey model accords withChinese situation. Thirdly, the analysis of inflation risk tests the fiscal policy andmonetary policy effect on inflation based on the theory of Keynes model. The result ofempirical analysis illustrates that there is a positive correlation between the increases ofgovernment spending and the rise of price level in the long term, but the price level riseswith a lag of two years. In addition, both expansionary fiscal policy and monetary policyhave an impact on inflation. Nevertheless, compared to monetary policy, the effect offiscal policy has an obvious lag. Fourthly, the analysis of debt risk contains the staticanalysis of debt risk index and the dynamic analysis between the national debt burdenrate and the deficit rate. Although the international standard line of static index is onlyexperiential data, but on the whole there is debt risk of repayment ability currently according to the indicies of debt dependence and debt repayment rate in China.At last, the dissertation summarizes and analyzes the problems of the current proactivefiscal policy, and puts forward some specific measures in order to adjust and improve thecurrent policy. The current proactive fiscal policy has limited the economic downturneffectively, and it promotes the economic growth steadily and relatively fast. However,there are also problems of crowding-out effect, inflation and debt risk in some degrees.According to the results of the study, the dissertation offers some specific suggestion insix aspects, including the adjustment of investment direction, promoting tax systemoptimization, enlarging consumption demand, arousing folk investment, stabilizing pricelevel and strengthening national debt management.