FU Minjie:The Transformation of Cyclicality of China's Fiscal Policyin Market-oriented Reform

Abstract  An important feature during the transformation process from a planned economy to a market economy was that the role of fiscal policy changed from the state capital formation mechanisms to the social safety net, which means the transition of a source of macroeconomic instability to a macroeconomic stabilization tool. This paper reveals the cyclicality of China's fiscal policy since 1953 and found that government expenditure, government consumption and government investment are pro-cyclical. The Chinese government implemented pro-cyclical fiscal policy, which means that high proportion of public spending on capital formation was the main reason of both the obvious pro-cyclicality feature of the planed economy and the gradual transformation of fiscal policy from pro-cyclical to acyclical. China's fiscal expenditure policy gradually transformed from strictly pro-cyclical to acyclical during the market-oriented reform process. The quality of fiscal macro-control has significantly improved, but is still far from the counter-cyclical fiscal policy of industrialized economies.

Key words： Market-oriented Reform    Fiscal Policy    Cyclicality

     Source: Finance & Trade Economics , No.10, 2014