Efficacy of Fiscal Policy in Stimulating Economic Growth During Recession in China

Abstract

Fiscal policy involves decisions related to government expenditures on public goods and services, as well as the collection of revenue through taxes and other sources. The government can use fiscal policies to adjust its spending and taxation levels to stimulate or restrain economic activity, influence consumer and business behavior, and achieve desired macroeconomic outcomes. A recession is characterized by a contraction in output, income, employment, and trade, usually accompanied by a general decline in business activity and a decline in consumer spending. During recessions, when economic activity declines, policymakers often turn to fiscal policy as a tool to boost aggregate demand, create jobs, and promote recovery. The study noted that China has experienced various economic downturns and has implemented fiscal policies to address them. Like during the global financial crisis in 2008-2009, China implemented a massive fiscal stimulus package to counter the economic downturn. Structural reforms, such as improving market competition, reducing administrative burdens, and enhancing the business environment, can amplify the impact of fiscal policy measures. Combining fiscal policy with structural reforms had a more significant effect on stimulating economic growth in China. In conclusion, timely and targeted fiscal interventions can have a positive impact on economic growth during recessions. Large-scale infrastructure projects, when implemented efficiently, have the potential to boost employment, drive domestic demand, and contribute to long-term economic development. The study recommended that policymakers should carefully identify and target sectors with high multiplier effects, such as infrastructure, innovation, and technology, to maximize the impact on economic growth. To maintain long-term fiscal sustainability, China should carefully manage public debt levels and ensure responsible fiscal practices. Continuous evaluation and monitoring of fiscal policy measures are essential to assess their effectiveness and make necessary adjustments.