本文发表于 SSRG International Journal of Economics and Management Studies (SSRG-IJEMS) – Volume 6 Issue 11 – Nov 2019
Analysis onTernary Paradox of Fiscal Distribution: Theory and Mitigation Methods Abstract:This paper proposes the ternary paradox offiscal distribution. Firstly, it points out the three goals of fiscal distributiontax cuts, increased public welfare expenditures, and control of governmentdebts and deficits, among which there are only two goals can be achieved at thesame time. This paradox has brought obvious and difficult problems in China’scurrent government regulation and control .There are inevitableresponsibilities of the regulatory authorities to face up to the ternaryparadox. To mitigate the ternary paradox, it is necessary to pay specialattention to the institutional innovation and comprehensive supporting reformin four aspects of spending less money and doing more work, making good use ofmoney and doing practical things, borrowing less and doing more work and expandingthe fiscal sources and optimizing the powers.1. Ternary Paradox ofFiscal DistributionIn contrast to the form of MundellKrugman’s impossible triangle and ternary paradox, examining the inherentconstraints of fiscal distribution, the ternary paradox of fiscal distributioncan be derived under conventionally defined conditions. If the management levelof fiscal recurrent expenditure, the administrative costs of the government andthe financing multiplier of the government debts are established, among threegoals of tax cuts, increased public welfare expenditures and the control ofgovernment debts and deficits in fiscal distribution, only two goals can beachieved at the same time. It is impossible to achieve three goals at the sametime.
1.1 Relationships among the Three GoalsFigure 1 visually shows the impossibletriangle of fiscal distribution under the aforementioned conditions: in anygiven period, only three choices can be made among the goals of tax cuts,increased public welfare expenditures and the control of government debts anddeficits that seems to be “reasonable”. First, if cutting the taxes andcontrolling government debts and deficits in fiscal distribution, then it isnecessary to reduce (impossible to increase) the public welfare expenditures.Second, if cutting the taxes and increasing the public welfare in fiscaldistribution, then it is necessary to improve (impossible to control) thegovernment debts and deficits. Third, if controlling government debts anddeficits and increasing public welfare in fiscal distribution, then it isnecessary to increase (impossible to reduce) the government non-debt revenuesrepresented by taxes. Thus, we can deprive Figure 2: ternary paradox of fiscaldistribution. The achievement of the goal on each corer of the triangle willnecessarily requires the matching of the items on two side waistlines, butinevitably violates at least one goal on other two corners of the triangle.Actually, the quantitative relationship here is veryclear. Therefore, it is very easy to break the “paper layer of window” between relevantpublic concerns and inherent paradox. Specifically, A. tax cuts can reduce theburden on enterprises and the residents. Thus, it will be popular. B. Increasedpublic welfare expenditures will increase the benefits of social members and therebyit will be popular. But both of them will increase the gap between governmentrevenues and expenditures, leading to C. deficits, thus increasing the totalamount of government debts raised to make up for the deficits, which involves “safetyissues”. In fact, the public does not lack common sense on this issue. When referringto government debts, it tends to cause widespread public concerns and dissatisfaction.Therefore, the common sense is that “You can’t make bricks without straws” and “Youcannot have your cake, and eat it”. From the perspective of fiscal distribution,tax is income, welfare is expenditure, and the two must be matched in the samedirection, increased or reduced at the same time. If you want to improve thewelfare and cut the tax, you must find another income source - debts, whichwill be increased to support the original matching relationship. Among theaforementioned A, B, and C, the achievement of A and B is at the expense of C,however, which may encounter the objective constraints of public risks. It isimpossible to have the three of them at the same time. The constraints embodiedhere are objective laws and will definitely extend and connect to the ultimateconstraints under the concept of sustainability in economic and social life.From the above analysis, we can conclude abasic understanding. Although the improvement of public welfare is the startingpoint and destination of economic and social development. However, underspecific conditions, for a economy at a certain stage, the case is not that thehigher the public welfare (represented by the scale of public welfareexpenditures), the better the conditions. When the public welfare is higherthan a certain point, its supporting role for economic development will berapidly reduced, even resulting in unsustainable economic growth. The positiveeffects of welfare improvement on economic development, which is brought bywelfare expenditures, and its transformation can be concisely expressed in rectangularcoordinates as shown in Figure 3.In the figure, the horizontal axisrepresents the level of public welfare (represented by the level of publicwelfare expenditures), and the vertical axis represents the positive orsupporting effect of welfare enhancing on sustainable economic development (canalso be quantified in a certain numerical unit). At the origin O, assume thatthere is no welfare, of course, there will be no positive effects. Once thereis certain public welfare on the right side, its positive supporting effect oneconomic growth will rise quickly with the increase of public welfare (in reallife, it is often called economic vitality promoted by the enthusiasm of thepeople, who are motivated or mobilized, etc. by the material interests) untilto the highest point (optimal value) on curve T, which corresponds to O' on the horizontal axis. However, if wecontinue to improve the welfare, the decline in positive effects (in real life,the rapid decline in economic growth and vitality) will quickly reduce thepositive effects at O'' point, which may fall into the negative range (comparedwith the case of Latin American mid-income trap). The distance between O' and O''is quite short. In other words, once the level of public welfare exceeds theoptimal value, its positive support for the sustainable development of a country’seconomy will soon be transformed into negative effect after a rapid decline.Therefore, the regulatory authorities should carefully and prudently control itwithin a range close to or even reaching peaks, but not exceeding the criticalpoint.This transformation curve of welfare enhancingeffect is similar to the positive effect curve of government debts[1]proposed by Jiakang in the 1990s. The inherent logic of the two is completelyconsistent, and in a sense, it can be taken as different expressions of thesame evolution process.1.2 Case Analysis: European Debt Crisis and theParticularity of the United StatesThe most important event in the worldeconomy in recent years was the “once-in-a-hundred-year” global financialcrisis triggered by the US subprime mortgage crisis. After hitting the USeconomy, it triggered serious European debt crisis.According to the inherent logic of ternaryparadox of fiscal distribution, the basic elements to alleviate the Europeandebt crisis is to reduce taxes to stimulate the economy, and to reduce deficitsand control the scale of debts to reduce default risks. The achievement oftheses two goals of fiscal distribution are at the expense of public welfare, whichinevitably contradicts with the direct interests and short-term benefits of thepeople. Thus, it is a tough problem. It tends to “politicize the economicissues”, and has triggered many rounds of strikes and social turbulence inGreece and other places. After the outbreak of European debt crisis, inaddition to the strong economy of the euro zone such as France and Germany, theruling party of the frustrated countries such as Greece and Italy, etc.logically proposed to reduce the deficit and control the scale of debt. However,under the rigid framework of the “welfare state”, it is difficult to reach aneffective trade-off between minimizing tax cuts and maximizing welfareexpenditures, which clearly embodies the inherent logic of the ternary paradox offiscal distribution. This case can be summarized as follows. In the euro zone, thegoals of tax cuts, deficits reduction and the control of debts of fiscaldistribution are at the expense of public welfare. Currently, in the euro zone,if it needs to cut taxes to stimulate the economy, cut deficits and control debtsto maintain fiscal sustainability, then it is impractical to comply with publicopinion to maintain the original comfortable and leisurely work and relativelyhigh public welfare. Sometimes, impractical things need to be diminished ordisguised by politicians to soothe public opinion and fight for votes. But intheoretical analysis, for ternary paradox of fiscal distribution that we haveoutlined, impractical is impractical.Different from the ternary paradox of fiscaldistribution, the United States is in control of the world currency hegemonyindependently, which provides it the opportunity to choose other logical pathat a certain stage, that is, let the bodies holding the dollar assets in globalto pay for the crisis and relax the constraints on its own fiscal distribution.Since the outbreak of the global financial crisis triggered by the US subprimemortgage crisis, the United States has chosen a combination of goals, that is, reducingtaxes and maintaining original public welfare to maintain social stability. Thepath is to reduce taxes and relax the control over debt and deficit. However,it does not lower the basic public welfare standards of the public, but adoptsQE (quality engineer) policy to forcibly and economically decentralize therisks (inflation pressure and financial debt risks), etc., to the majoreconomies of the world by means of its supremacy status in the hard currency ofglobal economy and let the world pay for it. Thus, two rounds of promulgatedQEs and the third round of QE under planning was carried out without fear. Fromthe perspective of the ternary paradox of fiscal distribution, the substantive secretsare as follows. Supported by the “world monetary hegemony”, the authority of USfiscal distribution is capable of producing huge income except for taxes anddebts by means of QE policy without interrupting the sustainability of itsfinancial operation, which is the currency issuance income. Therefore, theternary paradox of fiscal distribution in the United States is more loose than anyother economies. This cannot be imitated by other economies in the world. Thisis the particularity of the United States.However, the looseness of the United Statesdoes not negate the ternary paradox and the ultimate constraint it reveals. Thislooseness is not unlimited. Its objective boundary lies in the objectivecritical line in which the status of the “international security assets” can bemaintained when the US dollar implied by the concept and form of the US fiscalsuspension are depreciated.1.3 Defined Conditionsand Contingent LogicThe previous analysis on the impossibletriangle and ternary paradox of fiscal distribution is based on definedconditions, including established level of fiscal recurrent expendituremanagement, fixed government administrative costs and specified financialmultiplier of government debts. These defined conditions are “slow variables”that are difficult to be changed greatly in a short term, but can be changedgradually. Their changes will have an impact on the goals of the ternaryparadox of fiscal distribution. The specific analysis is as follows.1.3.1 Financial Recurrent Expenditure Management LevelThe fiscal recurrent expenditure mainlyincludes personnel expenditure, public expenditure and social securityexpenditure. The logical relationship between the level of fiscal recurrentexpenditure management and the goals of impossible triangle is as follows.First, the higher the level of fiscal recurrent expenditure management, the higherthe utilization efficiency of personnel expenditure, public spending and socialsecurity expenditures of fiscal expenditures, the less the capital loss, and thestronger the ability to “do more things with less money”. Obviously, it is beneficialto reduce taxes and control debts and deficits. Second, the higher the level offiscal recurrent expenditure management, the higher the performance of socialsecurity expenditures. Obviously, it helps to improve public welfare. In short,the level of fiscal recurrent expenditure management is positively related tothe goals of impossible triangle in fiscal allocation: the higher themanagement level, the more favorable it is to reduce taxes, improve publicwelfare and control debts and deficits, and vice versa (refer to Table 1).1.3.2 GovernmentAdministrative CostsThe administrative costs of the governmentmainly include the relevant expenses of the state administrative organs,administrative institutions, the public security organs, procuratorial organs,the court and various foreign institutions. Such expenses are not similar to economicconstruction expenditures that can directly promote economic development, norsimilar to social expenditures that can directly improve the social publicwelfare. It is generated by the government in the process of performing itsfunctions. In nature, it can be regarded as a kind of running costs or “sunkcosts” that cannot be avoided by any operating system, which is closely relatedwith institutional arrangements and the construction of management mechanisms. Thelogical relationship between changes of the government administrative costs andthe objectives of impossible triangle is as follows. First, the higher thegovernment administrative costs, the greater the “self-consumed” costs incurredby the government in performing its functions. These expenses are all from thefiscal revenue. Obviously, it is not conducive to reducing taxes andcontrolling debts and deficits. Second, the higher the governmentadministrative costs, the greater the crowding out effect on fiscal and socialexpenditures under the same financial level. Obviously, it is not conducive to improvingthe public welfare. In short, the level of government administrative costs isnegatively related to the objectives of impossible triangle in fiscal distribution:the higher the administrative costs, the more unfavorable it is to reducetaxes, improve public welfare and control debts and deficits, and vice versa(refer to Table 2).
1.3.3 FinancingMultiplier of Government Debts
The Keynesian multiplier theory refers to amacroeconomic effect, that is, the degree of chain reaction of changes in theeconomic aggregate caused by the increase or decrease of a certain variable.Referring to the definition of the multiplier effect, we believe that the“government debt financing multiplier” can be defined as the degree of chainreaction of the change in the total amount of government financing caused bychanges in government debts. The logical relationship between the government debtfinancing multiplier and the goals of impossible triangle is as follows. First,the larger the government debt financing multiplier, the more the total funds raisedthrough government debts. In order words, smaller amount of government debtscan be financed to obtain more available financial resources. Thus, there is lesspressure on the government to raise direct debts, or there is more disposableexpenditures brought by the government’s debts. Obviously, it is beneficial toreduce tax and control debts and deficits. Second, the larger the governmentdebt financing multiplier, the more disposable funds available from financing underspecified government debts, the more disposable funds available for non-financingaffairs, and the larger the social fiscal expenditures. Thus, it is beneficialto improve public welfare. In short, the government debt financing multiplieris directly proportional to the goals of impossible triangle in fiscal distribution:the larger the financing multiplier, the more favorable it is to reduce taxes,improve public welfare and control debts and deficit (refer to Table 3).1.3.4 Derivation and Analysis on the Formula of TernaryParadox of Fiscal DistributionBased on the analysis on the ternaryparadox of fiscal distribution, defined conditions and contingency logic, wecan know that the principle can be expressed by the following formula:
As discussed above, the positive andnegative correlations between the defined conditions and the goals of impossibletriangle in fiscal distribution are shown in Table 4.Among them, A (Administration) is thefiscal recurrent expenditure management level; C (Cost) is the level of governmentadministrative costs; M (Multiplier) is the government debt financingmultiplier.Again, taking formula as an example, the aforementioned defined conditionsdirectly affect three coefficients in the formula. If the effect is expressed ina formula, the following equations can be obtained:
By combining formula with equations , the following formula ④ is obtained, and the influence of defined conditionson each goal is more clearly and intuitively reflected in the following:2. The Characteristics andMitigation Methods of Ternary Paradox of Fiscal Distribution at Mid-incomeStageThe ternary paradox of fiscal distributionpresents different characteristics at different stages of economic developmentand resident income. Combing its inherent logic with the characteristics ofconstraints is helpful for reasonably adjusting the mitigation methods. Aftermore than 30 years’ development in the new period of reform and opening up,China has entered the mid-income stage currently, specifically the transitionperiod from the lower middle income to upper middle income. Seen from thegrowth trend of per capita GNI (GDP), China will step into the transitionperiod from the mid-income stage to the high income stage quickly. However, thediscussion on the mid-income trap has attracted wide attention. In view of thefact that Latin America has fallen into the mid-income trap due to theimplementation of welfare catch-up based on populism, China should pay closeattention to the correct grasp of the development strategy in the mid-incomestage. From the perspective of this paper, it is necessary to analyze thecharacteristics of the ternary paradox of fiscal distribution at mid-incomestage in China, and to take correct regulation and mitigation methods based onits inherent logic.2.1 TheWelfare Catch-up and Mid-income Trap Based on Populism at Mid-income StageThe welfare of the residents is the startingpoint and destination of development, but should be gradually improved with thecontinuous upgrading of the economy in economic catch-up period. However, the “welfarecatch-up based on populism” in the representativecountries of Latin America has been aborted due to various factors in the lastcentury and has dragged the national economy into the mid-income trap.The main performance of Latin Americanwelfare catch-up is the blind expansion of populist labor protection and socialspending. First, with the rapid economic growth, the income gap between urbanand rural areas in Latin America has gradually widened, and the continuousinflux of migrant workers from rural areas to cities has led to an oversupplyof urban labor markets and a steady decline in wages, which further intensifiedthe problem of income gap. Under the dual role of the high unemployment rateand the “example effect” of the welfare system in developed countries, thecountries simply copied American-style “election” democracy, the populistsentiment became more and more prominent, and many parties promoted theestablishment of high employment protection and high welfare in Latin America,which has become a heavy burden for macroeconomic development. Second, LatinAmerican countries were enthusiasm with populist. After the 1970s, fiscalexpenditures were mainly used to expand social expenditures. The ratio ofsocial expenditure in GDP in various Latin American countries increased from1990 to 2000. In certain countries, the social expenditure accounted for ashigh as 60% to 70% of public expenditures. Even in the case of severe financialshortages, the deficit was still blindly expanded to satisfy socialexpenditures, thus completely dragging down the macro economy.Thelogic of the populist-based welfare catch-up that leads to economic catch-upfailure and mid-income trap can be incorporated into “populist macroeconomics”(Dornbusch & Edwards, 1989). The logical path is roughly as follows: themacroeconomic policy is successful in the first battle — the economic growthencounters bottlenecks — the economic development is hindered — the populistgovernment goes bankrupt.Inthe first phase, the government supported by the populist social foundationimplemented welfare catch-up in the economic catch-up. The economic output andreal wages were universally improved at the beginning. Due to the introductionof labor legislation, the maintenance of suitable employment rate and satisfyingthe will of the people to improve the social security, the economy showed athriving scene. However, since the first stage was a pure consumption stagewithout accumulation, its further development encountered the bottleneck. Thesecond stage made the invisible problem of the first stage explicit. On onehand, the increase in the scale of fiscal expenditure based on the expansion ofthe fiscal deficits caused huge demand for domestic goods, which was seriouslyopposed to the insufficient supply. More goods needed to be imported with foreignexchanges. At the same time, the already very hard-working finances mustmaintain “high welfare”. Simply mechanical copying of the European and Americanwelfare system and catching up with Europe and the United States made thefinancial situation even more worse.On the other hand, due to thelarge amount of foreign exchanges used for imports, the foreign exchanges were seriouslyin shortage, resulting in more goods needed. However, there were no moreforeign exchanges to support the imports to meet the demand. At the thirdstage, the typical contradiction between supply and demand made the government unableto control the price of goods and could only implement price adjustment, localcurrency depreciation, foreign exchange control, and industrial protection. Atthis stage, the wages of the people increased rapidly, but the inflation increasedmore faster, leading to a decline in actual purchasing power. After the developmentof the first three stages, the government supported by the former populistsocial foundation inevitably fell into bankruptcy under the intensification ofvarious contradictions. The new government presided over the overall situation,had to implement the stability plan under the orthodox macro policy or made useof the assistance of international agencies such as the IMF to maintain theeconomic development of the country. At this time, the real wages of thedomestic people had fallen sharply, which was lower than the level before thepopulist government taking office, and would be at such a low level for a longperiod of time. Economic growth stagnated, or even regressed, and fell into theso-called mid-income trap. The serious consequences of the implementation ofwelfare catch-ups based on populism made Latin American economies fall into themid-income trap. It can be seen that although the welfare catch-up is thedestination, without strong economic catch-up as sustainable means of support, thewelfare goal will not be realized ultimately.2.2 The Characteristics and Mitigation Methodsof Ternary Paradox of Fiscal Distribution at Mid-income StageThe experience of “Latin Americanization”shows that the economy at mid-income stage should focus on avoiding the welfarecatch-up based on the populism and the consequences caused by it due to theintensification of social contradictions. According to the ternary paradox offiscal distribution proposed in this paper, it is clearly that Latin America choosesthe goal combination of reducing taxes and increasing public welfare in theprocess of fiscal distribution at mid-income stage. According to the logicrevealed by ternary paradox, the achievement of this goal combination needs to increasedebts and deficits. From the practice of Latin American welfare catch-up basedon populism, which made its economy fall into the mid-income trap, this region wasindeed striving to cut taxes and improve public welfare by increasing debts andfiscal deficits, which ultimately dragged the national economy down into atrap. For China, which is also at the mid-income development stage, it isworthwhile to think deeply about how to realize sustainability and alleviate ternaryparadox of fiscal distribution. In general, the characteristics of ternaryparadox of fiscal distribution at mid-income stage are prominently reflected inthe following two aspects.2.2.1 The Restrictive Relationship Reflectedin the Ternary Paradox Usually Strongly Contradicted with Public OpinionThe theoretical analysis and empiricalinvestigation of development economics shows that when a country enters the mid-incomestage, it usually comes with the people’s higher expectations on income andwelfare. This expectation is easily ahead of the actual income growth rate andthe ability of the government to improve public services and public welfare.Thus, the people may be dissatisfied and act as “Behave as a gentleman whilethe dishes are being serving; swear like a bully when the dinner is over”.There will be various “prominent contradictions”. The populist tendency with inherentlogic of “the people being always right” is easy to occur and even becomepopular at this stage. When horizontally comparing with the economicdevelopment and welfare system of western developed countries, this populistsentiment tends to heat up quickly, and strives for welfare. The populistsentiment has prevailed and gradually warmed up in China in recent years.According to the logical path of the ternary paradox of fiscal distribution,the tendency is obviously the choice that Latin America has made: strongly strivingfor reducing taxes and increasing public welfare. However, such a demand needsto be achieved by increasing debts and fiscal deficits, which are by no meansborderless. The catalysis of populism tends to cause welfare catch-up surpassthe economic catch-up, and excessive expanding of the debts. When emphasizingthe restrictive relationship contained in ternary paradox and responding rationally,a person may be strongly resisted by the public and under the pressure of “beingattacked by the masses”. The disparity of western power is easy to promote therising of welfare catch-up, make the scale of debts and deficits out ofcontrol, and ultimately drag the national economy into the trap. The welfarewill decrease dramatically as well as the possibility of economic catch-up andthe development of the entire country. Therefore, the mid-income stage is the bestperiod for the economy catch-up. We should firmly and rationally implement theeconomic catch-up strategy, meanwhile, steadily provide the suitable welfarecatch-up, and avoid the rising and developing of the populism, which focuses onimmediate interests instead of long-term interests and becomes a hidden dangerof sustainable economic development. Therefore, it is believed that at mid-incomestage, under the ternary paradox of fiscal distribution, it is scientific tochoose the goal combination of reducing taxes and controlling debts and deficits,the achievement of which is at the expense of controlling the public welfare.Thus, it is not welcomed by the public. In order to avoid the welfare catch-upbased on the populism at mid-income stage and eventually realize the economiccatch-up strategy that spans the mid-income trap, the policy-makers should guidethe public to think rationally in a visionary, determined and strategic way, andcoordinate the short-term interests, long-term interests and fundamentalinterests to realize the balance and connection of the interests.2.2.2 The Rising Pressure of “Politicalizationof the Economy” and the Narrowed Flexible Space of “Buffering” Social ContradictionsIn view of the fact that the restrictiverelationship reflected by ternary paradox usually contradicts with the publicopinion more strongly at mid-income stage. Thus, under the ternary paradox offiscal distribution, it is a fundamental and primary choice to choose andadhere to the scientific development path that coordinates the overallplanning, considers carefully, complies and also guides the public. It isundeniable that populist sentiments will have a significant impact on the policychoice of the government. In a sense, government policies often deal withrelevant complex issues. After entering the mid-income stage, a series ofsensitive economic issues such as prices, taxation, and public utility supply,etc., are easy to be closely related with the contradictions between incomedistribution and government management, which reduce the critical point of “politicizationof economic problems”, and intensify the pressure of “maintaining socialstability”. Thus, the available flexible “buffering” space used to compromiseand mediate the pressure and dissatisfaction is narrowed.According to the ternary paradox of fiscal distribution,the goal combination of reducing taxes, controlling debts and deficits and improvingpublic welfare cannot be achieved simultaneously. “Buffered flexible space” isessentially the safe operation space corresponding to the total immediate intereststhat are achieved through relatively unintuitive way of expanding the scale ofpublic debts gradually, meanwhile complying with the social mentality tominimize taxes and increase public welfare in a concentrated and convenientway. According to the logic of impossible triangle of fiscal distribution, the levelof increased public welfare is inversely proportional to the level of reducedtaxes and the level of debt and deficit control. The decision-making level mustpay special attention to the scale of public debts that are increased toalleviate social conflicts. A series of partial operations to prevent “economicpoliticization” will be attributed to the relaxation of the control over publicdebts, and the deficits and debts will continue to accumulate in successiveyears. Once the boundary of the narrowed buffering flexible space is broken,the hidden problems may be explicit and result in prominent contradictions andcrisis, and even cause a change in the overall development situation and the interruptionof the “golden development” process.3. Possible Methods toMitigate Ternary Paradox of Fiscal DistributionAs mentioned above, the ternary paradox of fiscaldistribution are the general understanding under defined conditions, which are theestablished fiscal expenditure management level, the established level of governmentadministrative costs and the given government debt multiplier effect. There arepositive or negative relevance between the defined conditions. The higher thelevel of fiscal expenditure management, the lower the administrative costs, thegreater the financing multiplier, and the more beneficial it is to reducetaxes, increase public welfare, and control debts and deficits. In view ofthis, from the perspective of the transformation of government functions, institutionalinnovation and deepening reforms, the possible methods to mitigate the ternaryparadox of fiscal distribution are the following four aspects.3.1 Effectively Improve the Management of FiscalExpendituresTo improve the management level of fiscalexpenditure requires comprehensive reform in institutional innovation,management innovation, and technological innovation. In order to truly realize “spendingless money and doing more work”, we must start from three aspects andstrengthen the reform interaction between them. First, for the institutional arrangement,pay special attention to the deepening of the reform of the financial systemand the construction of the fund performance supervision and evaluation systembased on it. Second, expenditure management should continue to implementscientific and refined management, and establish sound monitoring system for thewhole process of fiscal expenditure. For relevant financial expenditureperformance evaluations, consider the introduction of comprehensive anddetailed balanced scorecards (tables) and other methods. Third, for therelevant technical aspects, consider to continue to comprehensively promote andimplement the systematic project with the most advanced information processingtechnology and upgrade the government financial management system on the basisof “Government Fiscal Management Information System (GFMIS)”, “Golden Tax” andother government “Golden” projects. On the basis of implementing the “TwelveGolden” projects proposed in 2002, we will continue to improve the advancement,safety and comprehensiveness of e-government, improve the convenience andaccuracy of information acquisition, information processing and informationtransmission, and electronically and systematically integrate and implement theperformance management methods, so as to comprehensively improve the managementlevel of fiscal expenditures, spend less money and do more work, and alleviatethe constraints of ternary paradox.3.2 Effectively Reducethe Government Administrative CostsThe key to effectively reduce the governmentadministrative costs is to promote comprehensive reform of the economy,administration and politics. The key contents are as follows. First,implementation the reform of administrative system, streamline the institutionsand personnel on the basis of rationalization of government functions andpowers (expenditure responsibility) at all levels. Improve the quality of humanresources, and reduce the costs of government department and personnel whileimproving the efficiency of government work. Second, continue to implement thebudget information disclosure system to strengthen supervision. The disclosureof budget and final accounts is an essential requirement of public finance andan important part of government information disclosure. To announce to thepublic the budget information of the “public spending on government cars,overseas trips and official receptions” of the central and local governments demonstratesthe government’s determination to fulfill its commitments and accept publicsupervision, promotes the further disclosure of various administrative costs bygovernments at all levels, and lays foundation for saving and reducinggovernment operation costs under public supervision. Third, further promote thereform of the management system related to government administrative costs, forexample, promote the reform of the official cars, strictly examine and reducethe number of groups and personnel going abroad due to business, strictlycontrol the standard of official business trips and official reception funds,and strictly forbid gifts, and so on. Fourth, vigorously improve the system offinancial fund supervision, evaluation and accountability so that the “taxpayer’smoney” can be used effectively to maximize the benefits and the saved financialfunds can be invested in the most needed aspects of the people’s livelihood.3.3Improving the Government Debt Financing MultiplierAs mentioned above, the government debtfinancing multiplier refers to the degree of chain reaction of the change inthe total amount of government financing caused by changes in governmentborrowing funds. The larger the financing multiplier, the more favorable it isto reduce taxes, increase public welfare and control debts and deficits. Improvingthe financing multiplier of government treasury bonds or local bonds willinevitably require a series of management and institutional innovations,especially comprehensive supporting reforms related to the policy financingsystem and mechanism. One of the key implementation points is to establish arisk-sharing mechanism (rather than a “bottom-free” fiscal guarantee mechanism)between the fiscal department, financial institutions, enterprises, commercialbanks and credit guarantee institutions, and so on. In the market economy, makeuse of the policy funds, market-oriented operations and specialization managementto “multiply” the funds with credit, that is, drive social funds and privatecapital to follow up and improve the efficiency of capital use like “twice theresult with half the effort”. It is feasible and necessary to explore thepotential in this aspect in the environment of market economy. It is beneficialto alleviate the constraints of ternary paradox, “spending less money and doingmore work”. Improve the multiplier effect to drive and mobilize more socialfunds to form relatively large synergy.3.4 Substantial Transformation of the Type of GovernmentFunctionsWith the development of market economy inChina, the rationalization of government functions is imperative. Theimplementation of state political power governance will mainly be reflected inthe management of social public affairs, and the administrative-regulatedgovernment should be transformed to a public service-oriented government. As adistribution system of “controlling money with administration and conductingadministration with money”, the finance must serve this historic transformationand realize its own corresponding transformation, that is, improve publicfinances. Substantially transforming government functions requires variousreforms in government systems, institutions and social management. For example,in terms of government systems, it is necessary to gradually clear and rationallydefine the functions of the government at all levels from the centralgovernment to the local governments. Make a detailed record of the powers,establish and implement a complete, transparent, scientific and reasonablemodern government revenue and expenditure classification system in the budget,and provide basic management conditions for fulfilling government functions. Interms of government social management, continues to establish and improve basiceducation, basic social and health security and basic housing security system,etc. covering the whole people, and emphasizes the transformation of thegovernment into service type government. Encourages and guides theestablishment of various non-government entities and intermediary organizationsthat are open to the market and oriented by public welfare, and improvesvarious institutions and systems for public-private cooperation. The PPP(Public-Private Partnership) model for the supply of public works and publicgoods should be a model that is particularly worthy of attention anddevelopment during the transformation of government functions. PPP model includesmany types of public-private contracts, for example, design and construction(DB), operations and maintenance (O&M), designing, building, financing andoperation (DBFO), construction, owning and operation (BOO), building, operationand transfer (BOT), purchase, building and operation (BBO), building, leasing,operation and transfer (BLOT), etc., and will be more widely applied andoptimized with the improvement of China’s market economic system and economicand social development, thus promoting the non-government entities andnon-government financial resources to inject new vitality for thetransformation and optimization of government functions, opening up newfinancial resources and resource potential space for the improvement of publicwelfare and effectively alleviating the pressure of government debts anddeficits.The ternary paradox of fiscal distributionreveals that due to the constraint of impossible triangle, we can only pick twoof the three goals simultaneously, which are tax cuts, the control of debts anddeficits, and the increased public welfare. This kind of constraints exist incommon, is accompanied by the occurring of prominent contradictions and cannotbe ignored in the process of economic and social devilment in China atmid-income stage. For the long run, we should follow “three-step” strategicgoal of the modernization of the Chinese nation that benefits the Chinesepeople and all mankind in a relatively stable and socially costly way andprocess. In terms of the decision-making, we must pay special attention to avoidingthe tendency of welfare catch-up based on populism when entering the mid-incomestage, which increases the public welfare at the expense of tax cuts andincreased debts and deficits, so as to avoid the mid-income trap of economicand social development. Currently, under the guidance of a comprehensive,coordinated and sustainable scientific development concept, China shouldcarefully, prudently and reasonably weigh and grasp the combination of fiscalpolicy objectives. Deal with a series of difficulties in fiscal distribution toserve sustainable development along the rational logical path, and face up tothe ternary paradox of fiscal distribution. Actively improve the level offiscal expenditure management, effectively reduce government administrativecosts, and improve government debt financing multiplier. Substantively transformthe government functions and optimize the social management. Thus, mitigate theconstraints of ternary paradox with the vitality and potential of reform andinnovation, and move towards a modernized country in a firm and orderly manner.[1]Jia Kang, Research Fellowin Chinese Academy of Fiscal Science, the Ministry of Finance, P.R.C., ChiefEconomist in China Academy of New Supply-side Economics; Su Jingchun, AssociateResearch Fellow in Chinese Academy of Fiscal Science, the Ministry of Finance, P.R.C.,Guest Researcher in China New Supply-side Economist 50 Forum.贾 康 介 绍
第十一届、十二届全国政协委员和政协经济委员会委员，华夏新供给经济学研究院首席经济学家，中国财政科学研究院研究员、博导，中国财政学会顾问，国家发改委PPP专家库专家委员会成员，中国一带一路PPP项目开发委员会委员，中关村公共资源竞争性配置促进中心首席经济学家，北京市、上海市等多地人民政府咨询委员，北京大学、中国人民大学等多家高校特聘教授。1995年享受政府特殊津贴。1997年被评为国家百千万人才工程高层次学术带头人。多次受朱镕基、温家宝、胡锦涛和李克强等中央领导同志之邀座谈经济工作（被媒体称之为“中南海问策”）。担任2010年1月8日中央政治局第十八次集体学习“财税体制改革”专题讲解人之一。孙冶方经济学奖、黄达—蒙代尔经济学奖和中国软科学大奖获得者。国家“十一五”、“十二五”和“十三五”规划专家委员会委员。曾长期担任财政部财政科学研究所所长。1988年曾入选亨氏基金项目，到美国匹兹堡大学做访问学者一年。2013年，主编《新供给：经济学理论的中国创新》，发起成立“华夏新供给经济学研究院”和“新供给经济学50人论坛”（任首任院长、首任秘书长），2015年-2016年与苏京春合著出版《新供给经济学》专著、《供给侧改革：新供给简明读本》、以及《中国的坎：如何跨越“中等收入陷阱”（获评中国图书评论学会和央视的“2016年度中国好书”）》，2016年出版的《供给侧改革十讲》被中组部、新闻出版广电总局和国家图书馆评为全国精品教材。根据《中国社会科学评估》公布的2006～2015年我国哲学社会科学6268种学术期刊700余万篇文献的大数据统计分析，贾康先生的发文量（398篇），总被引频次（4231次）和总下载频次（204115次）均列第一位，综合指数3429，遥居第一，是经济学核心作者中的代表性学者。
