On the Existence of Non-linear Effect of Fiscal Policy on Private Consumption and Trigger Conditions

By establishing a theoretical model of the relationship between fiscal policy and private consumption,this paper initially confirms the possible non-linear effect of fiscal policy on private consumption and the determination role of trigger conditions in the effects of fiscal policy.Then it quantifies trigger conditions by threshold model and makes an empirical study based on the monthly data from January 1993 to November 2009.The results are as follows:firstly,during the sample period,the effect of fiscal expenditure policy on private consumption is generally featured by Keynesian effect,and by contrast,the effect of tax policy on private consumption is featured by significant non-linear effect;besides,at the tax growth rate of 0.287,fiscal policy transfers from Keynesian regime to non-Keynesian one;secondly,the Keynesian regime of fiscal policy in China is highly consistent with the high-inflation regime,namely the occurrence of non-Keynesian effect of fiscal policy under high inflation;thirdly,the positive effect of fiscal policy on private consumption is rather limited,and the multiplier effect is not significant.Therefore,governments should make an adjustment in fiscal policy and ensure the effective increase in private consumption with active solution to high inflation.