China's Proactive Fiscal Policy

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 macroeconomic management in the Chinese modernization. Although there are notable distinctions between the Western “Keynesian” and the “nonKeynesian” schools of thought, both of these approaches’ core policy goals and methodological roots are the same, composing the traditional Western macro-fiscal approach. This approach faces increasing real dilemmas.China’s proactive fiscal policy, however, places greater emphasis on future potential growth rates in addition to equilibrium between supply and demand, achieving a fiscal policy transformation 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 function and risk assessment criteria of government debt, the scope and effects of reductions in taxes and fees, its approach and focus of demand management, and the costs and resulting efficiencies of policies in order to develop a new fiscal policy paradigm that is more in line with its stated goals.