What Factors Influence the Effectiveness of Fiscal Policy?

Fiscal policy element risk is an endogenous risk of fiscal policy itself, which is directly related to the quality of the element and usually runs through the entire process of the policy.

Fiscal policy element risk

Right!

Fiscal policy element risk is an endogenous risk of fiscal policy itself, which is directly related to the quality of the element and usually runs through the entire process of the policy.

Chinese name

Fiscal policy element risk

Object

Endogenous

Attributes

risk

Nature

Throughout policy

The quality of factors includes the reasonable selection of the number of policy objectives, the correction of target preferences, etc .; the behavioral norms of policy subjects, the coordination between policy makers and implementers; the value of policy instrument variables, the flexibility of policy instruments, and the soundness of policy instrument functions Wait. The quality of factors directly affects the scope and intensity of policy functions, and is also restricted by the scope and intensity of policy functions. The two are a dialectical and unified relationship. Their differences objectively determine the nature and degree of the risk of fiscal policy elements. . ^[1]

The main risks of fiscal policy include the risks of fiscal decision-making and the risk of policy implementation, because policy subjects are policy makers and implementers. Whether their behavior is normal or not affects policy functions and policy effects, especially in China's current institutional arrangements are not reasonable. The behaviors and preferences of governments at all levels have a decisive role in policy formulation and implementation, and policy subjects have a higher degree of risk. In addition to subjective factors, in the process of fiscal policy decision-making and implementation, objective factors such as insufficient information, information asymmetry and future uncertainty, and the level and ability of policy subjects also affect the degree of risk of policy subjects.

Decision-making risks are mainly reflected in decision-making errors caused by the decision-making subject's bias in understanding the economic environment, incomplete information, asymmetry, and the human nature of decision-making in the determination of policy goals and the selection of policy tools, causing risks to fiscal activities . For example, due to the impact of the Asian financial crisis, China's macroeconomic environment is low overall economic growth, excessive growth of savings, and serious domestic demand shortages. In response, on August 30, 1999, the Eleventh Session of the Ninth National People's Congress of China passed the amendments to the "Individual Income Tax Law" to recover interest income tax on deposits in RMB and foreign currency deposits in China at a rate of 20%. It will be implemented from November 1, 1999. The purpose of this move is to: start consumption and stimulate domestic demand; regulate the personal income gap; standardize the tax system and increase fiscal revenue. But in fact, the original intention of restoring the interest tax levy was not realized in the end. On the contrary, since the current real interest rate level has dropped to -1.75%, repeated taxation in the case of "negative interest rates" has hurt the majority of savers. The negative deposit interest rate in 2004 caused the general public to lose more than 700 billion yuan of purchasing power. This result reflects the risk of fiscal policy decision-making, because the introduction of interest tax has two effects: income effect and substitution effect on household savings and consumption. The substitution effect will reduce savings and increase current consumption, and the income effect may Reducing savings may also be the opposite. One of the reasons for the negative effect of China s interest tax policy is that the direction and extent of the income effect is not accurately grasped; the second reason is that the tax flexibility of Chinese residents during the transition period is small, and the individual s The lack of understanding of higher preferences has resulted in the decision-making risks of fiscal policy and brought huge losses.

The risk of policy implementation is mainly the risk of policy subjects during the implementation of the policy, due to the failure of the implementing subject to accurately understand the policy intent, the inflexibility of controlling the policy tools, and the failure to overcome the trend towards profit. For example, local governments, driven by local interests, will have different attitudes towards different policies formulated by the central government, that is, policies that are conducive to local development will be implemented and policies that are not conducive to local development will be negatively resisted. Local governments have greater autonomy, and they can no longer use the methods of the fiscal system of unified revenue and expenditure to resolve frictions between the central and local governments. The complexity of the problems has increased the risk of policy implementation. In addition, some enforcement entities have thoroughly studied the loopholes in current fiscal policies and used them for their own profit. For example, the central government s tax return policy for local governments is an important part of the tax sharing reform. Consumption tax is linked, that is, each time the two taxes in the region increase by 1%, the local tax return increases by 0.3%. This policy has prompted local governments to increase the collection and management of value-added tax and consumption tax, and has caused serious structural problems in local industries. This is also a prominent manifestation of the risks of fiscal policy subjects.

3 Fiscal policy instrument risk

Fiscal policy tools mainly include taxation, national debt, public expenditure, government investment, and fiscal subsidies, which reflect the content of fiscal revenue and expenditure and budget. The risk of policy tools is due to the overall arrangement of the tool portfolio or the internal arrangements of the various tools, as well as the total or structural risk caused by insufficient flexibility during the implementation of fiscal policies, which are mainly reflected in the choice of fiscal policy tools and the failure of policy tools. There is a lack of organic cooperation. For example, the active fiscal policy implemented in 1998 took fiscal expenditures and national debt as the main policy tools. In terms of the choice of policy tools, it is mainly to increase domestic demand through the issuance of national debt and the scale of fiscal expenditure, to drive economic growth, and other policy tools are rarely used. The lack of organic coordination between different fiscal policy tools has increased the overall level of risk, such as deficits and debt risks, and has put the economy under greater inflationary pressure.

Improper internal arrangements of various financial instruments can also trigger more serious policy risks. For example, in terms of fiscal expenditure, the proportion of economic construction expenditures and administrative expenditures is high, and the proportion of social cultural and educational expenditures and national defense expenditures is low. There is also an imbalance in structural proportions within various expenditures; in terms of fiscal revenues Due to the existence of large-scale extra-budgetary revenues and extra-system revenues eroding the weak and strong branches phenomenon of taxation, the management and use of fiscal funds are inefficient; in terms of national debt, the scale of national debt issuance has continued to increase, making the national debt burden rate constant Increase, and due to the unreasonable maturity structure of the national debt, the concentration and repayment of principal and interest are relatively large, which weakens the ability of the national debt to repay, and the main operation mode of issuing new debt to repay old debt also indicates that financial resources are weak and debt The risks are huge; in terms of government investment, too much capital is invested in competitive and profitable areas, but investment in energy, transportation, agriculture and other infrastructure and basic industries is inadequate, making economic development "bottlenecked". Restrictions; in terms of financial subsidies, unscientific subsidy project settings and irregular management hinder China's reform For example, unreasonable price subsidies for energy and loss-making companies will distort economic and environmental costs and hinder market regulation. Excessive subsidies on exports will easily weaken the international competitiveness of domestic enterprises. Therefore, unreasonable fiscal subsidy policies should Reform or terminate as soon as possible. The above is a simple analysis of the risks of fiscal policy tools, especially the risks of China's current fiscal policy tools. This part of the content is actually the main research object of policy structural risks. We will focus on the research of fiscal policy structural risks.

In addition, the flexibility of fiscal policy is insufficient, that is, it cannot be adjusted accordingly with changes in economic operating conditions, or the role of fiscal policy is too large or too small, and due to the obstruction of specific interest groups in the implementation of fiscal policy. Can trigger fiscal policy risks, these aspects are reflected to varying degrees in the formulation and implementation of active fiscal policies.