Com­par­a­tive Anal­y­sis of Fis­cal us* Sus­tain­abil­ity of China and the

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WangDe­hua Na­tional Acad­emy ofE­co­nomic Strat­egy, Chi­nese Acad­emy ofSo­cial Sciences Ab­stract: The fis­cal sus­tain­abil­ity of China and the United States is of ma­jor concern glob­ally. Based on com­par­a­tive data anal­y­sis, this pa­per re­veals that the govern­ment debt level of both coun­tries is within the nor­mal range. Ro­bust growth prospects of both coun­tries will also vig­or­ously sup­port their fu­ture mit­i­ga­tion of govern­ment debt level. Com­par­a­tively speak­ing, Chi­nas govern­ment debt level is healthy and, de­spite ex­ten­sive con­cerns, even its lo­cal govern­ment debt is not very high. The as­sess­ment that China may en­counter a cri­sis is not sup­ported by ev­i­dence. Yet in the long run, both coun­tries will face pres­sures from in­creased fis­cal spend­ing on elder care and health­care stem­ming from an age­ing pop­u­la­tion, which will threaten their fis­cal sus­tain­abil­ity. These chal­lenges re­quire both coun­tries to speed up re­forms of elder care and health­care. Specif­i­cally, China needs to fo­cus on elder care re­forms and the US should at­tach more im­por­tance to health­care re­forms. Key­words: fis­cal sus­tain­abil­ity, debt level, pen­sion in­sur­ance, health­care JEL clas­si­fi­ca­tion: H72; H63; H75

DOl: 10.19602/j .chi­nae­conomist.20 17.04.03

1. In­tro­duc­tion

Fis­cal sus­tain­abil­ity refers to the abil­ity of a govern­ment to per­form its due fis­cal obli­ga­tions at any time and, in par­tic­u­lar, main­tain sol­vency for mid- and long- term debts. When the govern­ment is un­able to per­form its fis­cal obli­ga­tions, it may risk trig­ger­ing a fis­cal cri­sis with broad eco­nomic and so­cial con­se­quences, i.e. fis­cal un­sus­tain­abil­ity 1 Thus, the key to fis­cal • sus­tain­abil­ity is to en­sure that govern­ment debts be tol­er­a­ble and that fis­cal risks be kept at bay.

In his­tory, it was not un­com­mon for a coun­try to fall into eco­nomic and so­cial cri­sis as a re­sult of fis­cal un­sus­tain­abil­ity. In mod­ern times, con­cerns for fis­cal sus­tain­abil­ity stem from the ex­ten­sive im­ple­men­ta­tion of an ex­pan­sion­ary fis­cal pol­icy. To cope with down­ward macroe­co­nomic pres­sures or ful­fill cer­tain fis­cal obli­ga­tions, gov­ern­ments of­ten re­sort to an ex­pan­sion­ary fis­cal pol­icy by rais­ing debts to in­crease short- term fis­cal spend­ing with­out in­creas­ing the tax bur­den in or­der to sta­bi­lize the econ­omy. How­ever, if the debts are not timely re­solved, ac­cu­mu­lat­ing debts will lead to high govern­ment debt ra­tios, spawn­ing the risks of a sovereign debt cri­sis. Since the global fi­nan­cial cri­sis in 2008, most coun­tries have adopted an ex­pan­sive fis­cal pol­icy with in­creas­ing in­ten­sity at the ex­pense of mount­ing govern­ment debts as a share in GDP. Greece and some other Euro­pean coun­tries even ex­pe­ri­enced debt crises. In to­day's in­ter­con­nected world, debt cri­sis in one coun­try may have global reper­cus­sions. In this sense,

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