根据Dwivedi(2010年，p . 601)，财政政策指的是改变税收、政府支出和借款的模式和水平的政府过程，试图实现各种经济目标的改善，比如就业率、平等和整体经济增长。当这一政策导致总需求的改善时，它被称为扩张性财政政策。这可能是增加支出，减少税收或增加转移。这通常是用来消除经济衰退的缺口(克鲁格曼，Wells和Graddy,2013,pp.452 – 453)。如果政府的财政政策是有效的，那么它的预算赤字必然会下降，反之亦然。
According to Dwivedi (2010, p.601), fiscal policy refers to the governmental process of changing the pattern and levels of taxation, governmental expenditure and borrowings, in an attempt to achieve improvements in various economic objectives, say, employment rates, equality and overall economic growth. When this policy leads to an improvement in aggregate demand, it is referred to as expansionary fiscal policy. This may be implemented as an increase in expenditure, a decrease in taxes or an increase in transfers. This is generally used to close a recessionary gap (Krugman, Wells and Graddy, 2013, pp.452-453). If the government’s fiscal policy is effective, there must be a fall in its budget deficit and vice versa.
China’s economy has been improving constantly from 2003 to 2007, but the 2008 global financial crisis led to a drop in China’s GDP growth and an increase in unemployment. The GDP growth in 2007 was 14.2%, which fell to 9.6% in 2008 (A1) and the unemployment in 2007 was as low as 4%, which surged to 4.2% in 2008 (A2). Inflation was under control from 2003 to 2006, but it has also surged up in 2007, before the onset of the recession. With the onset of recession, it has increased further in 2008 (A3).
In order to combat the recession, the Chinese government implemented an expansionary fiscal policy for the first time and loosened the monetary policy to boost the economic growth. The policy included an injection of four trillion Yuan, to fund major areas, such as infrastructure construction, low-income housing projects, healthcare, education, energy saving and others over a period of two years. The policy also included cuts in VAT, in an aim to ease tax burden for businesses and improve their investments. China had a fiscal deficit of 950 billion Yuan, accounting for less than 3% of its GDP in 2009 (Xinhuanet, 2009).