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An Analysis of the Functional Effectiveness of the Automatic Stabilisers of Fiscal Policy in China

Received: 12 October 2015     Accepted: 26 October 2015     Published: 13 November 2015
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Abstract

Granger causality Wald test and impulse response analysis were employed to test the functional effectiveness of automatic stabilisers of fiscal policy in China, which revealed that the automatic stabilisers exhibited asymmetries in fiscal revenues and expenditures. In particular, automatic fiscal stabilisers reduced economic fluctuations in fiscal revenue during economic booming and recession. With respect to fiscal expenditures, increases and decreases in central fiscal expenditures occurred during times of economic decline and growth, respectively, and thereby exerted countercyclical smoothing effects on the macro-economy; by contrast, increases and decreases in local fiscal expenditures occurred in accordance with economic developments, amplifying economic expansions or recessions. These differences in spending patterns between central and local governments caused malfunctions in automatic stabilisers that were related to fiscal expenditures. Given the premise that the relationship between central and local fiscal approaches should be rationalised, the fiscal spending policies should focus on investments in the livelihood and improvements in the autonomy of budgetary decisions by local governments.

Published in International Journal of Economics, Finance and Management Sciences (Volume 3, Issue 5)
DOI 10.11648/j.ijefm.20150305.35
Page(s) 616-622
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2015. Published by Science Publishing Group

Keywords

Fiscal Policy, Automatic Stabilisers, Asymmetry

References
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[2] Fatás, Antonio and Mihov, Ilian, 2003, “The Case for Restricting Fiscal Policy Discretion”, Quarterly Journal of Economics, Vol. 118, No. 4, pp.1419-1447.
[3] DeLong, Bradford and Summers, Lawrence, 1986, “Is Increased Price Flexibility Stabilizing?” American Economic Review, Vol. 76, NO.5, pp 1031-1044. Available at: http://works.bepress.com/brad_delong/11.
[4] Arteta, Carlos and Barry, Eichengreen, and Charles, Wyplosz, 2001, “When does capital account liberalization help more than it hurts?” Working paper 8414, http://www.nber.org/papers/w8414.
[5] Chen, Jianqi, 2010, “How the fiscal stability failed?”, Government Finance, Vol. 24, No. 10, pp. 26-27.
[6] Gabriel, Cuadra and Juan, Sanchezb, and Horacio Saprizac, 2010, “Fiscal policy and default risk in emerging markets,” Review of Economic Dynamics, Vol. 13, No. 2, pp. 452-469.
[7] Gali, Jordi, 1994, “Government size and macroeconomic stability”, European Economic Review, Vol. 38, No. 1, pp. 117-132.
[8] Hanson, Michael, 2004, The ‘Price Puzzle’ Reconsidered, Journal of Monetary Economics, Vol. 51, No. 7, 1385-1413.
[9] Ernesto, Talvi and Vegh, Carlos, 2005, “Tax base variability and procyclical fiscal policy”, Journal of Development Economics, Vol. 78, No., 156-190.
[10] Hess, Chung and Troy, Davig, and Eric Leeper, 2007, “Monetary and Fiscal Policy Switching”, Journal of Money, Credit and Banking, Vol. 39, No. 4, pp. 809-842.
[11] Jia, Kang, 2008, “The proactive fiscal policy and a prudent fiscal policy-the road to public finance construction,” Journal of Tongling College, Vol. 19, No. 1, pp.4-11.
[12] Li, Yongyou and Zhou, Dajun, 2007, “Automatic stabilizer vs. discretion: weighing and perfecting on macro-control mechanism of fiscal policy,” Finance & Trade Economics, Vol. 18, No. 2, pp. 10-18.
[13] Mankiw, Gregory, 2011, Principles of macroeconomics (Fifth edition), McGraw-Hill, pp. 458-462.
[14] Martin, Larch and Matteo, Salto, 2005, “Fiscal rules, inertia and discretionary fiscal policy,” Applied Economics, Vol. 37, No.10, pp. 1135-1146.
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[16] Rotemberg, Julio, 2003, “Stochastic technical progress, smooth trends, and nearly distinct business cycles,” American Economic Review, Vol. 93, No. 5, pp. 1543-1559.
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  • APA Style

    Huachun Wang, Lu Zhao, Xuan Zhang. (2015). An Analysis of the Functional Effectiveness of the Automatic Stabilisers of Fiscal Policy in China. International Journal of Economics, Finance and Management Sciences, 3(5), 616-622. https://doi.org/10.11648/j.ijefm.20150305.35

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    ACS Style

    Huachun Wang; Lu Zhao; Xuan Zhang. An Analysis of the Functional Effectiveness of the Automatic Stabilisers of Fiscal Policy in China. Int. J. Econ. Finance Manag. Sci. 2015, 3(5), 616-622. doi: 10.11648/j.ijefm.20150305.35

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    AMA Style

    Huachun Wang, Lu Zhao, Xuan Zhang. An Analysis of the Functional Effectiveness of the Automatic Stabilisers of Fiscal Policy in China. Int J Econ Finance Manag Sci. 2015;3(5):616-622. doi: 10.11648/j.ijefm.20150305.35

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  • @article{10.11648/j.ijefm.20150305.35,
      author = {Huachun Wang and Lu Zhao and Xuan Zhang},
      title = {An Analysis of the Functional Effectiveness of the Automatic Stabilisers of Fiscal Policy in China},
      journal = {International Journal of Economics, Finance and Management Sciences},
      volume = {3},
      number = {5},
      pages = {616-622},
      doi = {10.11648/j.ijefm.20150305.35},
      url = {https://doi.org/10.11648/j.ijefm.20150305.35},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20150305.35},
      abstract = {Granger causality Wald test and impulse response analysis were employed to test the functional effectiveness of automatic stabilisers of fiscal policy in China, which revealed that the automatic stabilisers exhibited asymmetries in fiscal revenues and expenditures. In particular, automatic fiscal stabilisers reduced economic fluctuations in fiscal revenue during economic booming and recession. With respect to fiscal expenditures, increases and decreases in central fiscal expenditures occurred during times of economic decline and growth, respectively, and thereby exerted countercyclical smoothing effects on the macro-economy; by contrast, increases and decreases in local fiscal expenditures occurred in accordance with economic developments, amplifying economic expansions or recessions. These differences in spending patterns between central and local governments caused malfunctions in automatic stabilisers that were related to fiscal expenditures. Given the premise that the relationship between central and local fiscal approaches should be rationalised, the fiscal spending policies should focus on investments in the livelihood and improvements in the autonomy of budgetary decisions by local governments.},
     year = {2015}
    }
    

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    AB  - Granger causality Wald test and impulse response analysis were employed to test the functional effectiveness of automatic stabilisers of fiscal policy in China, which revealed that the automatic stabilisers exhibited asymmetries in fiscal revenues and expenditures. In particular, automatic fiscal stabilisers reduced economic fluctuations in fiscal revenue during economic booming and recession. With respect to fiscal expenditures, increases and decreases in central fiscal expenditures occurred during times of economic decline and growth, respectively, and thereby exerted countercyclical smoothing effects on the macro-economy; by contrast, increases and decreases in local fiscal expenditures occurred in accordance with economic developments, amplifying economic expansions or recessions. These differences in spending patterns between central and local governments caused malfunctions in automatic stabilisers that were related to fiscal expenditures. Given the premise that the relationship between central and local fiscal approaches should be rationalised, the fiscal spending policies should focus on investments in the livelihood and improvements in the autonomy of budgetary decisions by local governments.
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Author Information
  • School of Government, Beijing Normal University, Beijing, China

  • School of Government, Beijing Normal University, Beijing, China

  • School of Government, Beijing Normal University, Beijing, China

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