Is Fiscal Policy Effective?

Abstrak

In the field of publiceconomic policy, Adam Smith's classical economic theory advocates that any economic policy is ineffective, while Keynesianism believes that the government should adopt an active fiscal policy to address economic crises. Which of these two fundamentally opposing views is correct? Should the government intervene in the economy? If intervention is necessary, should it be through fiscal policy, monetary policy, or exchange rate policy? This study conducts a hypothesis test on the effectiveness of fiscal policyusing economic data from China between 1999 and 2018 and regression methods. The research finds that fiscal policy is effective in China; therefore, the government should use an active fiscal policy to build infrastructure, drive economic development, andprovide well-being for the people.