The Theoretic and Positive Study of Non-linear Effect of Fiscal Policy in China

Fiscal policy′s non-linear effect refers to the fact that fiscal policy not only has Keynesian effect, but also has non-Keynesian effect. The paper uses the Regime Switching Model to examine fiscal policy's non-linear effect. Result shows that effects of fiscal policy on economic growth in China are non-linear. In the regimes, such as 1978-1982, 1987-1990 and 1994-1995, the effect of fiscal policy is non-Keynesian;while in the regime 1996-2006, the effect of fiscal policy is Keynesian, when our economy is suffering from inadequate effective demand. Finally, the paper shows that initial fiscal conditions and magnitude of fiscal consolidations are not necessarily related to non-linear effects of fiscal policy.