Abstract: Although the fiscal situation is highly susceptible to disruption during financial crises, there is still a lack of empirical research on the impact of the financial cycle on China's fiscal sustainability. In view of this, this article first analyzes the characteristics of China's financial cycle and the asymmetric macroeconomic effects. Then, based on the introduction of the concept of financial neutral output gap, financial cycle adjustments are made to the fiscal balance to analyze the impact of the financial cycle on China's fiscal sustainability. The empirical analysis results show that China's financial cycle exhibits obvious asymmetric characteristics; In the stage of financial depression, the fiscal balance after financial cycle adjustment is larger than the fiscal balance after traditional business cycle adjustment. Based on the financial neutral output gap and its corresponding potential output adjusted fiscal balance, the interference of financial cycle on accurate judgment of fiscal sustainability is eliminated to some extent. Given the impact of financial factors on China's financial situation, in order to ensure the sustainability of China's finances, it is necessary to establish cross annual budgets and medium-term plans, as well as the coordination of macro prudential policies.

Keywords: Financial neutral output gap; Financial cycle; Financial sustainability;