The Economic Effect Analysis Of Fiscal Policy In China

Although each school held different viewpoints on the effectiveness of fiscalpolicy all the time, the implementation of the macro fiscal policy’s country is not leastthroughout the world, the combination of market economy and macro-control hasbecome an inevitable trend. Look from the historical experience, during the Asianfinancial crisis lasted from1997to1998and the global financial crisis outbreak in2008, adopted a proactive fiscal policy in our country, and has achieved good, notonly effectively suppressed the crisis’s impact to our country’s economy, but alsocontributed to the economic growth. It also triggers the financial risks and problemssuch as "crowding-out effect"; that requires the government give enough attention tothe economic effect of fiscal policy. In this thesis, we have a detailed analysis aboutthe economic effect of government spending and net tax by establishing SVARmodel.In the analysis of government expenditure’s economic effect, select quarterlydata and build SVAR model, government expenditure expansionary shocks are foundto have positive effects on GDP and private consumption in the short and long term,have positive effects on private investment in the long-term, negative effects in theshort-term. In addition to this, Government expenditure can be divided into two partsof public consumption and public investment. Both public consumption and publicinvestment have positive effects on GDP in the short and long term, publicconsumption’s effect is more significant. Public consumption and privateconsumption are complementary relationship, public investment has crowding-ineffect on private consumption in the medium and long term, but public consumption’seffect is more significant. Public consumption has crowding-in effect on privateinvestment in the short and long term, but public investment has crowding-out effecton private investment in the long-term.The analysis method of tax revenue’s economic effect is as the same as above.Tax expansionary shocks are found to have negative effects on GDP in the short andlong term, have no significant effect on private consumption which is in line with the ricardian equivalence theorem. It has crowding-out effect on private investment in thelong-term. Tax can be divided into two parts of direct taxes and indirect taxes. Directtaxes have significant negative effect on GDP in the short and long term, but indirecttaxes have no significant negative effect on GDP. Direct taxes have crowding-ineffect on private consumption in the short-term, have crowding-out effect in themedium and long term and have crowding-out effect on private investment all thetime. Indirect taxes crowd out private consumption all the time, significantly crowd inprivate investment in the short and medium term and insignificantly in the long-term.According to the conclusion, we put forward some suggestions on two aspects:In the aspect of government expenditure, appropriately raise the proportion ofgovernment expenditure, will get better effect in driving private consumption andprivate investment; In the aspect of tax, for stimulating private consumption andinvestment, pulling the economic growth, the structure adjustment of making indirecttax as the main body, reducing the proportion of direct tax is more ideal.