China’s Proactive Fiscal Policy

Xing Li, Chen Long*

Chinese Academy of Fiscal Sciences, Beijing, China

Abstract: In contrast to the traditional Western approach to macro-fiscal management,China’s proactive fiscal policy is founded on a people-centered development philosophy and,with distinctive Chinese characteristics, is a significant policy innovation of macroeconomicmanagement in the Chinese modernization. Although there are notable distinctionsbetween the Western “Keynesian” and the “nonKeynesian” schools of thought, both ofthese approaches’ core policy goals and methodological roots are the same, composing thetraditional Western macro-fiscal approach. This approach faces increasing real dilemmas.China’s proactive fiscal policy, however, places greater emphasis on future potential growthrates in addition to equilibrium between supply and demand, achieving a fiscal policytransformation with a new approach. In this paper we argue that with such a new approach,China should reconsider the nature and reasonable level of the fiscal deficit, the functionand risk assessment criteria of government debt, the scope and effects of reductions intaxes and fees, its approach and focus of demand management, and the costs and resultingefficiencies of policies in order to develop a new fiscal policy paradigm that is more in linewith its stated goals.

Keywords: Proactive fiscal policy, fiscal approach, potential growth rate

JEL Classification Code: G38

DOI: 10.19602/j.chinaeconomist.2024.01.04