What role can fiscal policy play in rebalancing China’s economy?

Fiscal policy could make a significant contribution to reducing China’s massive current account surplus, though discussion of rebalancing often overlooks its potential. The government has the resources to increase spending or cut taxes now, but it is constrained by institutional conservatism and poor budget management. In the next few years, however, we expect deficit spending to increase and to play a much larger role in putting the economy on a more sustainable path.