PREFACE

In the socialist market economy with Chinese characteristics，the fiscal and financial issues have formed an interlocking relation ship. The formation and development of fiscal risks financialization are of objective inevitability. Preventing and defusing financial risks is the fundamental task of financial work，as well as an important task of modernizing fiscal work，which is the foundation and significant pillar of the national governance. In the new era，the new normal has raised new requirements to the coordination and cooperation between the fiscal and financial work in balancing steady growth and risk prevention. It is of paramount significance to study the generating basis and transmission mechanism of the fiscal risks financialization for preventing and defusing major risks and promoting high-quality economic development.

Based on the expounded research on the basic concepts of fiscal risks，financial risks，and fiscal risks financialization，related theories，and literature review，the book proposes the differences and connections between fiscal and financial issues. There are differences in nature and subjects，basic functions and policy tools，while have similar functions in allocating resources and stabilizing the economy. Fiscal and financial funds are different in nature. The existence of the monetary capital and monetary economy is the premise of the connection between fiscal and financial capital，and the relationship is mainly reflected in the two aspects of mutual income source and mutual capital source. The mutual transformation of the fiscal risks and financial risks is an objective phenomenon in economic operation，thus forming a closed loop. Fiscal risks financialization and financial risks fiscalization are different in nature，production conditions and transmission mechanism，and the risks circulation mechanism is not a simple single-chain transmission. The government's participation and intervention in economic activities provide essential prerequisites for the fiscal risks of financialization. The causes mainly include that the growth of fiscal revenue is constrained by law and economy，the need for economic stimulus policies and the rapid growth of investment scale in infra-structure construction. The characteristics and performance of the fiscal risks financialization depend on the nature of the economic system，the structure of the financial system and the adequacy of capital markets，and that root cause is fiscal risks. The transmission path changes alongside with the manner of using financial means to resolve fiscal deficit risks. The fiscal risks financialization has dual macro effect. Public benefit increase and marketable efficiency loss of the capital should be aggregated to assess macro effects. The macro effects evaluation standard can be analyzed and demonstrated from two perspectives：the effectiveness of fiscal and financial resources allocation in the whole society and the macro cost and benefit. The evaluation of inflation risks mechanism should be based on the impact of inflation fluctuations on the economy，and the banking institutions'systemic risks transmission mechanism should be based on the degree of systemic risks. The prevention mechanism should be established on the basis of double macro effect，and focus on controlling the negative macro effects of fiscal risks financialization. The risks monitoring index system should be constructed including fiscal system，financial system and the macroeconomic system.

This book reviews the evolution history of the fiscal risks financialization in the U-nited States，Japan，South Korea and some Latin American countries，and compares its characteristics under different economic systems. This book introduces the historical evolution of the fiscal risks financialization in China since the founding of the People's Republic of China from three dimensions：the change in the economic development strategy and the reform of the fiscal and financial system，the change of the relationship and action between fiscal and financial issues in national economy and capital financing，and the causes and characteristics of the fiscal risks financialization. It focuses on the economic and institutional factors of the fiscal risks financialization in the post-crisis period，as well as the transmission mechanisms changes of the inflation risks and the banking institutions systemic risks.

This book avails different empirical models to measure and analyze the risks source and acting path of the fiscal risks financialization transmission mechanism in the post-crisis period，as well as the degree of the macro effects and dual macro attributes. Firstly，the dynamic factor analysis and time sequence models are utilized to analyze the risks sources of the two types of transmission mechanisms. The research illustrates that in the transmission mechanism of the inflation risks，both the central fiscal risks and local ones have significant positive effects on inflation，and the effect of the local fiscal risks stands greater. In the transmission mechanism of the banking institutions systemic risks，the central fiscal risks show a significant negative effect，while the local ones demonstrate an immensely positive effect，which indicates that the central fiscal risks can reduce the systemic risks of the banking institutions，and the local ones is the decisive factor of the formation of this transmission mechanism. Secondly，the book analyzes the acting path of the conduction mechanism through comparison and classified demonstration. The research holds that in the inflation risks mechanism，the local fiscal risks caused rapid rise of property prices，leading to the generalized inflation risks；in the transmission mechanism of the banking institutions systemic risks，the local fiscal risks have no significant impact on the state-owned commercial banks'credit risks，with the joint-stock commercial banks，city firms and rural financial institutions being their major funding sources and transmission channels. The central fiscal risks mainly have a significant impact on the credit risks of the state-owned commercial banks and rural financial institutions，which mainly stems from the development orientation and the operation scale of the state-owned commercial banks，the business scope of the rural financial institutions and other factors. Thirdly，the moderated mediating effect model is used to analyze the overall effect of the fiscal risks financialization on the macroeconomy. The study shows that the impact of the fiscal risks exists alongside with their financialization on the macroeconomy，and the essence of the fiscal risks financialization is a mediation effect of the impact of the fiscal risks on the macro economy，which holds about a quarter of the whole macro effect. Under the effect of the regulation of the financial system structure factor，the macro effect gets a marked increase in the proportion. Finally，the book employs the threshold effect regression model to analyze the dual macro effects of the fiscal risks financialization. The analysis shows that the relationship among the fiscal risks financialization and macro-economic growth illustrates an“inverted U shape”，as well as fiscal risks and macro-economic growth. Fiscal risks financialization can slow down the negative macroeconomic impact of fiscal risks，and also delay the negative externalities appearance. Within the range of low risks and early warning，fiscal risks financialization has significantly positive promoter action to the macroeconomy，however，fiscal risks financialization phenomenon should be to implement strict external regulation and policy intervention in control range.

As the economy has entered the new normal and preventing major risks has entered the protracted war，the book proposes the basic principles，institutional framework and relevant policy suggestions for the prevention and control of the fiscal risks financialization，based on the causes and particularities of the financial risks and the current situation of preventing and defusing major risks in China. The prevention and control of the fiscal risks financialization should be founded on its dual nature，and make rational use of its positive effects to promote economic growth，with strict control over the negative effects of the excessive of financialization on financial security and stability. The different functions of the fiscal and financial issues should be reasonably divided，and the government debt financing should strictly adhere to the principle of marketization and separate the functions of policy-based finance and commercial finance. The systematic risks prevention and control framework should be established from fiscal and financial aspects：on the fiscal side，the legalization of budgets and implicit debt management should be strengthed，the budget management systems that commensurate administrative powers with spending responsibilities and financial resources should be put in place，the financing mechanism of local governments and government expenditures management should be reformed and improved；on the finance side，the direct financing market，multi-level differential financial institutions system，and comprehensive supervision and coordination of supervision should be developed and improved. In addition，it is suggested to establish the macro-prudential management system with both fiscal and financial work as pillars and realize“localization”of the system，enhance the position of fiscal work in the macro-prudential management framework in order to effectively make up for the limitations of the current macro-prudential management policy and promote the maximization of macro benefits.