Proactive Fiscal Policy: The New Logic of China’s Practice

Abstract

China’s proactive fiscal policy adheres to the development ideology centered around the people and differs from the traditional Western logic of macro-fiscal policy. It bears distinct Chinese characteristics and represents a significant macroeconomic governance policy innovation in China’s process of modernization. Despite the considerable differences between the perspectives of the Keynesian tradition and the non-Keynesian tradition, their policy objectives and methodological foundations are broadly similar, constituting the traditional Western logic of macro-fiscal policy. Currently, this logic is facing increasing practical challenges. In contrast, China’s proactive fiscal policy not only aims to restore supply-demand balance and potential growth levels but also emphasizes enhancing future potential growth rates, marking a transformation from the traditional Western logic to a new logic. It is essential to emphasize that under this new logic, forming a new fiscal policy paradigm requires a reevaluation of the nature and appropriate scale of fiscal deficits, the role and risk measurement standards of government debt, the space and effectiveness of reduction of taxes and administrative fees, demand management methods and priorities, as well as policy costs and efficiency, among other fundamental categories.