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Study on Fiscal Sustainability and Fiscal Response to the Epidemic

【Authors】
LV Bingyang & LI Zhao
【WorkUnit】
Renmin University of China, 100872.
【Abstract】

At present, China is 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 epidemic, and the fiscal system is facing huge challenges. Our 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 deficit rate and assessing the sustainability of China's finances, we believe that the epidemic will lead to a more severe fiscal situation in China, but the fiscal sustainability is strong. We must adopt a “two-way” fiscal strategy that balances economic and social goals with fiscal sustainability. To this end, proactive fiscal policies can work in two ways: first, increasing income sources, and appropriately increasing the deficit rate and special debts; and second, raising the quality and returns of development, strengthening areas of weakness and expanding domestic demand. At the same time, we must turn the crisis into an opportunity to promote the reform of the financial system by establishing a medium-term budget framework, promoting cooperation between the government and the non-governmental sector in public utilities, rationally positioning the taxation function and reforming the taxation system, and implementing national reform of the social security system.


JEL:H77, H41, H50

【KeyWords】
Epidemic Shock, Fiscal Sustainability, Fiscal Policy, Fiscal System