Study on Fiscal Sustainability and Fiscal Response to Epidemic

China is currently at an important historical juncture.The realization of a series of economic and social goals requires more proactive and effective fiscal policies,but the contradiction between fiscal revenue and expenditure has become more prominent under the impact of the COVID−19 outbreak,and the fiscal system is facing huge challenges.The paper re-summarizes the fiscal function and the direction of fiscal policy response to the impact of the epidemic.By estimating the impact of the epidemic on the fiscal defi cit rate and assessing the sustainability of China’s fi nances,we believe that the epidemic may lead to a more severe fiscal situation in China,but fiscal sustainability is strong.China’s fi nance must adopt a“two-way”strategy that balances economic and social goals with fiscal sustainability.To this end,proactive fiscal policies can work in two ways:fi rst,increasing income sources,appropriately increasing the deficit rate and special debt;and second,improving quality and enhancing efficiency,making up for shortcomings and expanding domestic demand.At the same time,we must turn the crisis into an opportunity to promote the reform of the fiscal system,including establishing a medium-term budget framework,promoting cooperation between the government and society in public utilities,rationally positioning the tax function and reforming the tax system,and implementing national pooling of social security system.

China’s Fiscal Sustainable Development during the 14^(th) FYP Period

In the context of national governance,public finance is embedded into China’s economic,political,and social systems as a medium between various national subsystems.As such,fiscal sustainable development should be viewed from a systematic and integrated perspective.This paper created an analytical framework consisting of three aspects:fiscal resource adequacy,institutional soundness and effectiveness,and external shocks.Chinese government has a relatively healthy balance sheet with adequate fiscal resources;however,it is faced with implicit debt risks and inefficiencies.China has initially established a basic fiscal framework with Chinese characteristics that are compatible with national governance,but problems remain in terms of fiscal responsibility,lawfulness,efficiency,fairness,and compatibility.When dealing with external shocks,policymakers should establish a clear fiscal policy rationale and approach based on the implications of fiscal sustainability.Fiscal sustainable development requires the strengthening of government capabilities to assess management and operation;thus,expanding available fiscal resources.Fiscal reforms should be expedited in order to create a modern fiscal system.Furthermore,a fiscal policy system should be developed and optimized according to the principles of fiscal sustainability in order to withstand external shocks.

Sustaining Fiscal Incentives

The current round of China’s economic development is expected to clear up in 2010, the final year of the country’s 11th Five-Year Plan (2006-10) that will pave the way for the next wave of economic growth. This year’s fiscal policies should follow several guidelines to lay a solid foundation for the stable and sustainable growth of the economy, writes Jia Kang, Director of the Research Institute for Fiscal Science under the Ministry of Finance, in a recent Guangming Daily article. Edited excerpts