Title: The Effectiveness and Term Structure of Active Fiscal Policy
Abstract: Since Post Financial Crisis Era,empirical evidence shows that active fiscal policy has a significant effect on maintaining steady path of China's economy growth and relieving the economic downturn pressure.In this paper,by employing sign-restriction vector autoregression model,we analyze the impulse response of fundamental and active fiscal policy shocks,and consider the stabilizing effect of active fiscal spending policy based on term structure theory.In the empirical analysis of China's active fiscal policy affecting on real economic trends,we found that government spending stimulates output,crowding-in the fixed investment,to some extent while crowding-out social consumption and raising the price level.Besides,fiscal policy stance is still independent to monetary policy to a certain degree,and active fiscal policy can significantly improve the effects on the real economy,but it may bring inflation risks.Viewing from the term structure of policy effect,one active fiscal spending has a positive accumulated effect on gross output,with the dynamic multiplier exhibiting an inversed U shape over the time horizon and by applying active fiscal policy,the pulling effect of output is greater than the cumulative fiscal cost.The policy implication showed by the empirical results suggests that with considering the policy cost,the Chinese government should make full use of the leading role played by government spending in transiting current industrial structure.Moreover,a sound interaction of fiscal and monetary policy would precipitate the pace of current economic transition and prevent the economy from declining during the Twelfth Five-Year Plan period in China.
Publication Year: 2014
Publication Date: 2014-01-01
Language: en
Type: article
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