What Is Fiscal Sustainability?

Fiscal sustainability refers to the state or ability of a country's finances as an economic entity. The concept of fiscal sustainability was first proposed by Buiter (1985). [1]

Fiscal sustainability

Right!

Fiscal sustainability refers to the state or ability of a country's finances as an economic entity. The concept of fiscal sustainability was first proposed by Buiter (1985). [1]

Chinese name

Fiscal sustainability

Object

Economic entities

Time proposed

Buiter (1985)

Specifically

State or ability of finance

For an economic entity, when it is unable to pay its debts, it cannot survive and declare bankruptcy; on the contrary, its ability to pay debts means that it can survive. From the scope of research, fiscal sustainability is a general statement of foreign theoretical circles on research related to government debt repayment. It studies the issue of government debt repayment ability, and it is essentially a study of the macroeconomic effects of fiscal policy. According to this research idea, fiscal sustainability is largely equivalent to the sustainability of the government's ability to pay debts, so the level of a country's debt burden is considered to be an important indicator of whether a country's finances are sustainable. ^[1]

From the perspective of the relationship between finance and the economy, the economy determines finances, and finances affect the economy. Economic sustainability is the ultimate goal that any economic entity is pursuing. Under the modern market economy system, as an important carrier and means of economic and social activities, fiscal sustainability is a necessary condition for achieving economic sustainability. On the other hand, fiscal sustainability cannot be limited to the sustainability of finance itself. For example, fiscal revenue and expenditure are generally balanced. Finance is an important part of the modern market economy system. Its service function to ensure economic and social stability and development is finance. It is based on the existence and development. Therefore, it is necessary to step out of the fiscal cycle itself and consider its sustainability from an economic level. Fiscal sustainability must have the ultimate goal of helping to achieve economic sustainability. ^[1]

The relationship between active fiscal policy and fiscal sustainability is twofold. On the one hand, active fiscal policy has an impact on fiscal sustainability and is a factor that affects fiscal sustainability; on the other hand, fiscal sustainability is an important guarantee for the implementation of active fiscal policies and is the choice of active fiscal transformation methods in accordance with. ^[1]

1. Active fiscal policy affects fiscal sustainability.

Generally speaking, the expansion of the fiscal deficit and the increase in the national debt balance brought about by the implementation of the proactive fiscal policy (expandable fiscal policy) may affect the level of government debt and fiscal stability, and then affect fiscal sustainability, which is short Policy implementation will bring long-term fiscal effects. The implementation of a proactive fiscal policy with expenditure expansion and income reduction as the main content will inevitably cause pressure on fiscal revenue and expenditure in the short term; while the implementation of expansionary policies will stimulate effective social demand and further promote economic recovery and sustainable growth. Maintaining fiscal balance and fiscal stability will help to form a benign mechanism for fiscal support for sustained economic growth. However, from another perspective, the excessive adoption of expansionary fiscal policies (excessive expansion or threat to the financial risk control system) may make the short-term pressure on fiscal revenue and expenditure too large to guarantee the performance of basic fiscal functions. , Which not only undermines fiscal sustainability, but also fundamentally undermines economic sustainability. Analyzing the impact of proactive fiscal policy on fiscal sustainability still needs to start from the perspective of fiscal sustainability measurement. From the perspective of measuring fiscal sustainability, fiscal risks can be assessed in terms of government-owned public resources and the government's public expenditure responsibilities and obligations.

In the 1990s, World Bank expert HanaPolackovaBrixi divided the government's public debt into two levels: the first level is direct liabilities and contingent liabilities, the former refers to liabilities that exist under any circumstances and have nothing to do with other events; The latter refers to liabilities that exist only in certain circumstances and are related to the occurrence of other events. The second level is explicit liabilities (or statutory liabilities) and implicit liabilities (or presumed liabilities). The former is a liability determined by law, contract or commitment; the latter is a liability that is presumed based on what may happen in the future. Moral liabilities and the boundaries of liability are unclear. The two levels cross each other to form 4 types of government debt (government fiscal risk): direct explicit liabilities, direct implicit liabilities, or explicit liabilities, or implicit liabilities. This actually points out two types of fiscal risks: one is direct fiscal risk, that is, the debt is directly borne by the finance, mainly directly explicit debt; the other is indirect fiscal risk, including direct implicit debt, or explicit debt and Concealed debts, when the finance must bear these debts, and the scale of the debts all depend on certain conditions. From the perspective of risk prevention, indirect fiscal risks, especially contingent debts, have the greatest uncertainty and the smallest controllability of risks, which may constitute a large source of risk for finance. Due to the particular nature of the institutional environment and development stage, for developing and transition countries, contingent debt constitutes the main body of fiscal risk to a certain extent, and has become a major factor that jeopardizes fiscal sustainability in the long term. Without a sound system, the implementation of a broad-based positive fiscal policy is likely to have a negative impact on fiscal sustainability by increasing the government's contingent debt.

2. Fiscal sustainability is the institutional guarantee for active fiscal policy implementation.

As a short-term policy tool, the transition or withdrawal of active fiscal policy is an inevitable trend. Keynesian theory evolved from initial short-term static analysis to long-term dynamic analysis after World War II. Researchers have proposed that macroeconomics is not always in a crisis state, but that it prospers and stagnates for a period of time. Therefore, fiscal policy cannot always be based on expansion. Expansive policies and austerity should be used alternately according to the cyclical fluctuations of the economy. Sex policy. From the perspective of fiscal revenue and expenditure, it is the alternating use of deficit and surplus policies. Specifically, the government should reduce taxes, increase expenditures, and implement a deficit policy during economic depression. The government should increase taxes, reduce expenditures, and implement a surplus policy during economic prosperity. The surplus should be frozen for use during the depression. It can be seen that the state of economic growth is the main basis for judging active fiscal transition or withdrawal.