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Liu Shangxi: New Thinking of Fiscal Policy Based on Risk Decision

Author: Newspaper reporter Ren Yan Source: China Financial and Economic News Published: 2019-08-16

Recently, at the press conference of the "Fiscal Blue Book: China's Fiscal Policy Report (2019)" and the "Macro Situation and Fiscal Policy in the First Half of the Year" seminar held by the Chinese Academy of Fiscal Sciences, Liu Shangxi, president of the Chinese Academy of Fiscal Sciences Under the current background of uncertainty, the logic of macro-control needs to be re-thought, and fiscal policy should no longer be viewed solely. From the perspective of risk management, the logic of fiscal policy should be considered in both economic and social fields.

Introspection of traditional macro-control policies

Fiscal policy has always been treated as an economic policy. According to Liu Shangxi, in fact, fiscal policy has two roles: when used for macro-control, fiscal policy is obviously an economic policy, but in the social field, Fiscal policy plays a role in promoting social fairness and justice, that is, social policy. This can be seen from the composition of fiscal expenditures. There are not only economic expenditures but also social expenditures. In recent years, there has been more and more, and the growth rate is much faster than the growth rate of economic expenditures. Liu Shangxi believes that this shows that when the country enters the current stage of development, the role of finance becomes more prominent, so we need to consider from multiple sides when we understand fiscal policy.

In fact, in the current context, thinking about fiscal policy from the perspective of macro-control also requires further reflection.

In the past, the implementation of fiscal policy applied a deterministic logic, that is, the measures taken must have an effect, and the fiscal policy was mainly analyzed and studied in the Keynesian demand management framework. At that time, fiscal policy was generally considered to be one of the most important means of managing demand, that is, to put fiscal policy in a "troika". At this time, the choice of fiscal policy is an after-the-fact choice-it is often to wait until the problem is very serious before taking the corresponding policy measures. It depends on the choices made in the judgment of the current economic situation, such as expanding investment and stimulating consumption.

Affected by the global financial crisis in 2008, China's four trillion stimulus measures have achieved results. But at this stage of development, when facing the same problems, will it be effective if China adopts the same measures? Does certainty still exist? Liu Shangxi said that this kind of analytical framework based on deterministic thinking can no longer meet the needs of realistic macro policies.

In the context of globalization, social transformation, and economic transformation, a series of structural problems formed by the interplay of internal and external factors have been difficult to reveal with traditional theories, and the deterministic logic seen in the past no longer exists. Now, we are seeing more uncertainty.

The theme of the G20 Osaka Summit held recently was the huge uncertainty facing the world. Obviously, as the world's second largest economy, China's development is also facing many uncertainties in the process of entering globalization. In the face of a new world outlook with huge uncertainties, if we continue to use traditional deterministic thinking, policy measures may not be effective. In fact, we now feel that the marginal effects of similar policy effects are rapidly diminishing. Therefore, Liu Shangxi believes that macro-control should be innovated according to the new situation. In order to innovate macroeconomic regulation and control, we must first incorporate macroeconomic regulation and control into public risk management. We must not look at macroeconomic regulation and control only in terms of macroeconomic regulation and control. The management of public risks should be at a higher level. Only when incorporated into the management framework of public risks, macro-control will not create risks.

Why is stable expectation so important?

According to Liu Shangxi, from the perspective of behavioral economics, the economic operation mainly depends on the expectations of the actors. If the expectations of the actors stabilize, the economy will stabilize. From this point of view, stability expectations have become the prerequisites and foundations for achieving "stability" in other areas.

From an economic perspective, the expectations of market players are the most important. Market entities are enterprises, individuals, consumers, investors, operators, and so on. The expectations of these entities determine their behavior—whether to invest or consume. At present, investment is relatively sluggish and consumer power is insufficient. So, how to stabilize expectations in the current uncertain environment? How to give everyone a "centering pill"? And how to make this "Dingxin Wan" better and more effective?

The uncertainty of modern society means that risks are ubiquitous and it is difficult to stabilize expectations from time to time. The central government proposes "six stability". The key is to stabilize expectations. In fact, it is to reduce uncertainty. Stabilizing expectations is a top priority at the moment, and is the top priority for macro policy. He said that stable expectations depend not only on economic means, but also on the social and international levels. Stability expectations can be achieved through both policy measures and reforms. It is necessary to have policies to solve some short-term problems. At the same time, it is also necessary to reform and improve the system and innovate institutional mechanisms to solve some long-term problems.

To stabilize expectations, we also need to reduce economic uncertainty. Liu Shangxi introduced that there are two reasons for economic uncertainty. On the one hand, the market mechanism itself has uncertainty, and on the other hand, the uncertainty comes from policy-induced uncertainty. In addition, there are various uncertainties that are synthetic, not necessarily created by a certain subject.

Among them, in terms of the uncertainty caused by the policy, he said that from the perspective of policy formulation, policy goals and measures in various departments, there is no problem with the starting point, but conflicts often occur as a whole. The frequency of policies is now relatively high. When new policies appear, market players often use them to cover the original policies. If the original policy has not been invalidated, the previous and subsequent policies have to be implemented, and when there are inconsistencies, it will leave the market entities incompetent, and the compliance costs and compliance risks of the micro-entities will be greatly increased. This synthetic uncertainty is the most difficult to resolve. So, how to strengthen the coordination of inter-departmental policies and the coordination of policies before and after? Liu Shangxi believes that this type of uncertainty can only be solved by the government itself. He said it still depends on adjusting the way of thinking.

New thinking on fiscal policy

Liu Shangxi proposed that the new thinking of fiscal policy is to change from past deterministic thinking to uncertainty thinking, find certainty, and achieve our goals and tasks. It is necessary to look at fiscal policy from the perspective of public risk management. At this time, fiscal policy must hedge risks in both the economic and social sectors.

He introduced that the new thinking of fiscal policy based on the perspective of risk decision-making is reflected in three aspects: First, the concept of fiscal policy that establishes uncertainty thinking. We must step out of the traditional deterministic policy analysis framework, formulate, adjust, and improve fiscal policies in the balance between public risk and fiscal risk, and incorporate uncertainty into the policy analysis framework. . Second, fiscal policy must inject macro-certainty to stabilize market expectations. Stabilizing expectations can stabilize the overall situation, thereby minimizing the public risks we face and allowing uncertainty to converge within the market. The third is to innovate fiscal policies based on public risk management.

From a risk perspective, one of the ultimate criteria for measuring fiscal policy is whether it can help clear micro risks and achieve convergence of public risks. It is concretely reflected in whether or not three goals can be achieved: First, to achieve a virtuous cycle of total social supply and demand by stabilizing the expectations of micro-subjects. The second is to achieve a virtuous cycle of public service supply and demand by promoting employment and human capital accumulation. The third is to achieve a virtuous cycle of financial supply and demand by maintaining liquidity and long-term financing. In addition, he proposed a view of institutional change based on public risks. He believes that if institutional changes are lagging behind and policies are incomplete, then the uncertainty will expand and risks in the market will not be cleared out, which will translate into public risks, leading to widespread micro-subject costs. rise. Preventing and resolving major risks is aimed at public risks. Since risks are unbounded and intangible, we must have a penetrating understanding of risk patterns, and we must use reform to promote system optimization and better resolve public risks.

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