Correlation Effects of Fiscal and Monetary Systems:Establishment of China's Modern Fiscal,Taxation and Financial Systems
The Fifth Plenary Session of the 19th Central Committee of the Communist Party of China(CPC)proposed the establishment of modern fiscal,taxation and financial systems,highlighting the importance of cooperation and coordi-nation between the fiscal and taxation system and the financial system.During the COVID-19 pandemic and in recent years,the unconventional monetary policies adopted by various countries have gradually blurred the boundaries between fiscal and monetary policies,and the monetary effect of finance has become increasingly prominent.However,the current mainstream theory on the path of money creation is still confined to the banking system,and few studies have verified the role of the fiscal department in money creation and its circulation from the perspective of institutional foundations.In fact,the unconventional monetary policies used by various countries not only enable the central bank to grant credit to the fiscal department but also provide a channel for the fiscal department to participate in the allocation of credit resources.In particular,China has a historical tradition and a political system foundation of"inseparability of the fiscal and fi-nancial systems."China's fiscal,taxation and financial systems are different from the established ones in the West.Social-ist public ownership and the leadership of the CPC are the unique characteristics of China's economy.Therefore,it is ur-gent to recognize the inherent unity of China's fiscal and taxation work and financial work in order to coordinate the inter-actions between the fiscal and taxation policies.This paper constructs a comprehensive analytical framework of fiscal influence on the monetary system with"insti-tutional foundation-regulatory capacity"as the main line,and verifies the regular characteristics and important regulatory capacity of fiscal departments influencing the monetary market by using methods such as text analysis,budget decomposi-tion and network analysis.The results are as follows.First,the centralized collection and payment system of the treasury,the institutional arrangement that the fiscal department performs the duties of the investor of state-owned commercial banks,and the fiscal credit risk compensation mechanisms such as the credit enhancement guarantee of government fi-nancing institutions and interest subsidy loans established by the fiscal department have enabled China's fiscal depart-ment to influence money creation.Second,the fiscal department has formed a strong influence on the money market.In terms of money supply,treasury deposits play a crucial role in influencing the changes in broad money and interbank mar-ket liquidity,and their impact on money supply exhibits obvious cyclical characteristics;in terms of the production of public financial products,in the past 10 years,the proportion of fiscal credit to commercial credit has been on the rise.In 2022,fiscal credit accounted for 11.04％-31.29％of the loans of financial institutions.Third,when the fiscal department and the central bank work together,they can employ open market operations to hedge treasury disturbances,use structural monetary policy tools to cooperate with the fiscal department to develop public financial products,and work together with the central bank to implement macro-prudential policy management tools by fulfilling the investor responsibilities of state-owned commercial banks.The contributions of this paper are threefold.Firstly,from the perspectives of institutional foundation and regulatory capacity,it confirms the objective existence of the monetary regulation system of the dual subjects of the fiscal depart-ment and the central bank,which may expand the existing theory's understanding of the subject of money creation and the impact of the fiscal system on the money market.Secondly,it supplements the important arguments in modem mon-etary theory and finds that the centralized collection and payment system of the treasury serves as a basis for applying the modem monetary theory to the creation and recovery of money by the fiscal department.Finally,the comprehensive ana-lytical framework of fiscal influence on the monetary system constructed in this paper,with"fiscal practice as the main line and monetary theory as the branch line,"may provide a framework for subsequent analysis of the monetary effect of finance.
FinanceMoney CreationCoordination between Fiscal and Monetary PoliciesModern Fiscal,Taxation and Financial System
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