Analyze On The Effect Of The Fiscal Policy To Employment Under The Limited Rational Expectations

Achieving the employment growth is one of the main goals of the macro economy for manycountries. In recent years, China solves the problem of employment by taking positive fiscal policy.Keynesian school thinks that the extended fiscal policy can result in employment growth underinadequate effective demand. The rational anticipated school argues the theory of policy invalid,that is to say, any policy on employment growth is invalid. Limited rational based on these twotheories, expects that China’s economic system can fit the assumption of limited rationalexpectation. On the implementation of the policy, people and the government are limited rationalbecause they are selective sense. This paper will discuss about whether China’s fiscal policy iseffective on employment growth, and the degree it works.The paper combines the theory and practice, the qualitative and quantitative. It finds thespecification of this research by using the documents and literature comparative induction method,after learning existing research achievements on this topic, mastering the basic economics theoriesrelated. Combined with the empirical analysis, it collected data from labor department, financialdepartment and statistics department, selected data of Y1985to Y2010, and data of29provincesexcept Chongqing and Tibet, then created the tectonic measurement analysis model. The modeladopted Engle and Granger two-step inspection, F test and Hausman inspection, created the tectonicpanel cointegration regressions, then empirically analyzed the effective of fiscal policy onemployment. This paper argues that in current situation, the impact of fiscal policy on employmentlevels rational, but it is not able to better adapt to the development of the employment market, andhave cautious influence and impact on enhancing employment and income. At the same time, theworkers are not sensitive of the fiscal policy. The impact from the tax and interest can not directlypromote employment growth to some extent. Therefore, the employment effects of fiscal policy arelimited, and the simultaneous growth under rational expectations can not be achieved and sustainedgrowth. Finally, it promotes ways to accelerate the growth of our nation combined the situation of employment in China.