Comparative Analysis of Fiscal us* Sustainability of China and the

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,