An Empirical Study Of Fiscal Sustainability In China:1978-2012

Fiscal sustainability is an important research topic in the field of macroeconomics. Acutely, in the1920s it has become a focus of finance research in Western countries, but the early research objects are more concentrated in developed countries in Europe. In recent years, with the outbreak of global financial crisis, the Europe sovereign debt crisis frequently staged, and the US has experienced rising budget deficit, a sharp increase in government debt, suffered a decline in sovereign ratings, these all threats to its fiscal sustainability. At the same time Japanese high deficit ratio and debt burden rate also make its fiscal sustainability seriously been questioned. In view of this, the fiscal sustainability issues once again become the focus of global theory.After the global financial crisis, to prevent the economic downturn and ensure economic growth target, China also began to implement the new round of positive fiscal policy, while accompanied by the growing budget deficit and government debt soaring. Many institutions and experts predict that the size of our national debt will continue to rise in the next few years, if plus the massive local government debt and a large amount of contingent liability and take into account of the economic development and fiscal expenditure pressures caused by demographic changes, our fiscal sustainability will face serious threat. Therefore, in order to clarify the status of the fiscal sustainability, this article will take in-depth study on the fiscal sustainability of China, thus to evaluate the future financial stability and the credit risk of public debt, and provide some policy advice for the macro strategic plan of continued implementation of the positive fiscal policy.This thesis begin with define the related concepts of fiscal sustainability, it first clear the meaning of fiscal sustainability in this text, then describe the concept and scope of government debt. Meanwhile, the study analyzes the practices of fiscal policy and the fiscal revenue and expenditure, and the reform path of government bonds. Then through some simple indicators, such as deficit ratio, debt burden rate et to do a preliminary judgment on the stance of our fiscal sustainability.Secondly, the thesis start from the theoretical framework about government’s Intertemporal Budget Constraint, according to the derivation of Ant6nio Afonso&Joao Tovar Jalles (2012), and through empirical testing methods, and then uses the Eviews6.0software to make economic analysis on the financial date from1978to2012. The empirical results show that between1978and2012there does existing co integration relationship between our country’s fiscal revenue and expenditure. And the co integration coefficient is less than1, which meets the IBC condition. So we conclude that our fiscal policy is sustainable. However, given the IBC model has obvious limitations, the paper also use the sustainability gap indicators proposed by Blanchard (1990), and according to the detailed derivation of Ales Krejdl (2006) to examine the fiscal sustainability from1995to2012, and further to predict the future of short-term(one year) and medium-term(three years) fiscal gap indicator, the results show that after2008the risk of fiscal unsustainable significantly increased.Then the thesis also analyzes several major risk factors that may affect our future financial sustainability, including the massive local government debt, the contingent liability that the government may ultimately have to repay and the social security spending gap caused by population aging.Finally, we further analysis and summary the theoretical analysis and empirical test results in the above chapters, and put forward some specific proposals to these risk factors which may threaten our future financial sustainability.