Chat with AIExam 10: Public Finances and Fiscal Policy in Action
Revenue sharing in the United States mainly involves federal revenue sharing with individual citizens at the local level. In China, revenue sharing mainly involves intra-governmental transfers. Discuss.
a. Explain why there is a difference.
b. Explain the different implications for consumption and investment.
(31) 
Verifieda. At the core of the issue is a fundamental difference between China's focus on investment as a source of demand and the U.S. focus on consumption as a source of demand. Localities in China are expected to use much of the shared revenue for investment. In the United States, the shared revenues are expected to be used for consumption by individuals. We note that some of the latter consumption in the United States in an economic sense is actually investment in human capital, e.g., healthcare or education/training. There are no doubt other issues particularly related to the important role of the government in China (at both the national and local levels) and individual consumers in the United States.
b. As discussed in (a), the implication is greater investment in China and greater consumption in the United States.
Decentralization of government spending and taxing has always been a central tenet (a basic principle) for guiding public finances (government spending and taxation). Describe what issues arise with decentralization in China's system of public finances.
(42) VerifiedThe central issue is that while expenditures have been decentralized (including mandated expenditures from the central government) revenue collection (taxes) is highly centralized. This has created a financing deficit for local governments-especially related to infrastructure spending. Thus local governments (provinces and downward localities) have come to rely more on land sales, bank and trust finance, and bonds. This has created concerns regarding financial stability (the potential for default) by some of the local governments. In turn, the central government would need to step in.
With respect to the relationship between provinces (states) and the central government, compare and contrast China and the United States in terms of a global, multinational, or transnational structure.
(31) VerifiedOn the tax side, China has much more of a global (command and control) structure, while on the expenditure side, it is relatively more multinational devolving much of the responsibilities to localities. China looks very much like a transnational in the way that it rotates officials from one locality to the next and then to and from Beijing headquarters.
Based on estimates of China's Taylor rule response function (as described in Chapter 9), compare and contrast China's and the United States' likely policy responses to future inflation and output shocks.
(36) Go to FRED (the Federal Reserve Economic Database) and update the chart, "General Government Gross Debt for China."
(31) Consider fiscal policy responses to the great financial crisis of 2008-09.
a. Explain the different fiscal policy responses in the United States and China to the Great Recession of 2008-09.
b. Explain whether the short-run policies in (a) are consistent with the longer-run goals of each country.
(33) What are the major challenges for the Chinese economy in the coming years? Compare and contrast with those of the United States.
(32) Compare and contrast monetary policy responses to the Great Recession of 2008-09 in China and the United States.
(35) Based on what you have learned in this chapter, explain why there are such great tensions over land rights at the local level in China.
(37) It is argued in this chapter that fiscal and monetary policies are more likely to have an immediate impact in China than in the United States. Explain.
(32) 
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