![]() ![]() The function of automatic stabilisers of fiscal policy will be reflected in fiscal surpluses or deficits (Mankiw, 2011). Under these conditions, fiscal expenditures should exhibit counter-cyclical characteristics (Stockman, 2001 Martin and Matteo, 2005). It is also presumed that this spending primarily relates to public education, social security, and other social concerns. The function of automatic stabilisers depends on the assumptions that a comprehensive system of public finance has been implemented in an economy and that government spending is designed to remedy market failures. The effectiveness of automatic stabilisers of fiscal policy is closely related to a country’s financial system (Rotemberg, 2003). This logic is normally attributed to Keynesian models of the economic cycle and the simplest representation is the traditional textbook version of the ‘Keynesian cross’ (Samuelson and Nordhaus, 1988 Mankiw, 2011). ![]() The function of automatic stabilizers relies on the assumption that the gross domestic product (GDP) or income fluctuations can be greatly smoothed by the changes in taxes and transfers during the economic cycle. Keywords: Fiscal Policy, Automatic Stabilisers, AsymmetryĪutomatic stabilizers are traditionally associated with the taxes, transfers and government spending. 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. These differences in spending patterns between central and local governments caused malfunctions in automatic stabilisers that were related to fiscal expenditures. 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. In particular, automatic fiscal stabilisers reduced economic fluctuations in fiscal revenue during economic booming and recession. 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. ![]()
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