Abstract: By constructing a dynamic stochastic general equilibrium model containing disaster expectation and factors of government spending, this paper makes an analysis of the effect of rarely-seen disaster events on the fiscal policy in China’s macro economy. The results show that the government spending can significantly weaken the impact of the rarely-seen disasters on China’s economy and improve the ability of macro economy to withstand rarely-seen disasters. The government fiscal subsidies show different characteristics in the two-department and three-department disaster economic entities; the wider fiscal subsidy range (accounted for more than 6%) can effectively resist the rarely-seen disaster impact on the two-department economic entity, but can not effectively shorten the recovery time of the economic entity. On the other hand, the role of fiscal subsidies must be treated differently in the three-department disaster economic entities: a lower proportion of fiscal subsidies (accounted for less than 3%) will intensify the instability of the economic entity due to the crowding-out effect on the fiscal expenditure, while a higher proportion of financial subsidies can offset the negative impact of the reduced fiscal spending, thus the economic entity can maintain a higher ability to resist risks.

Key words: fiscal policy effect; rarely-seen disaster impact; government spending; fiscal subsidy; DSGE model