China's Fiscal Expenditure Structure

The thesis is a research on China's public expenditure structure. Based on former researches and achievements, it normalizes the theoretic framework of fiscal expenditure structure; problems in China's fiscal expenditure structure and their causes are analyzed by empirical analysis of China's fiscal expenditure practice. On the above basis, approaches to and institutional control for optimizing China's fiscal expenditure structure are explored and feasible policy solutions are proposed.With reference to western fiscal expenditure theories, government function theories, public product theory, public choice theory and theories on fiscal expenditure structure, this thesis conducts research on fiscal expenditure structure. In the era of free competition, Adam Smith was representative of the numerous western economic theories on fiscal expenditure. Up to 1930s, as the great depression broke people's blind belief in the market and promoted the upsurge of government intervention in economy, the fiscal expenditure theory pioneered by Keynes emerged and thereafter prevailed for a long time. By 1970s, at the wake of stagnation and inflation, Keynesianism came to a dilemma, and various new theories emerged, including the modern monetarism, the supply school, the rational expectant school and other schools of economic liberalism. After 1980s, more and more researchers focused on exploring the relationship between fiscal expenditure and economic growth by the usage of econometric models, to find out the optimal fiscal expenditure level and proposals for fiscal expenditure structural adjustment.With the development of China's socialist market economy, changes took place in the allocation mechanism and relationship of social resources, bringing about changes in the function, scope and structure of fiscal expenditure accordingly. Domestic researches and studies mainly dwelled on developing suitable expenditure structures that fit the new economic system.Starting with some basic concepts, namely normal fiscal expenditure, fiscal expenditure structure and optimization of fiscal expenditure structure, this thesis proceeds to analyze expenditure structure optimization from the perspectives of public resource allocation and government functions. In essence, expenditure structure optimization means proper proportion and harmonious relationship between all the factors of public fiscal expenditure within certain period, on the premise that the fiscal expenditure rate in GDP remains rational so as to fulfill certain policy goals. In other words, expenditure structure optimization refers to rational allocation of public resource to meet all kings of social public demand. Diverse and multi-level social public demand leads to diverse and multi-level resource allocating activities, which means that the expenditure structure optimization should follow certain principles, such as the principle of adaptability, harmony, efficiency and gradualness. As the government functions vary within different development stages, the scope of public product provided by the government should vary correspondingly, resulting in the change of the expenditure structure. Based on the economic development stage theory of Masgrif, the development rules of expenditure structure corresponding to the economic stages are discovered:First, in the long run, economic expenditure declines gradually, within which the proportion of infrastructure construction investment undergoes an up-down-up route.Second, as economy develops, the proportion of social service expenditure will gradually increase.Finally, the proportion of maintenance expenditure tends to decline because of its nature of daily necessities.The development rules of various nations' fiscal expenditure structure are studied by comparing the expenditure of different countries (US, UK, for instance) in different expenditure items. Firstly, fiscal expenditure proportion in GDP in developed countries is much higher than that in China, where the expenditure on medication, public welfare and security takes much of the proportion. Secondly, by comparing the proportion of the expenditure items, mostly the expenditure on economic construction, national defence, education, sanitation, social welfare and administration, it is found that the expenditure of market economy mainly centered on the following items: social security, education and scientific research, roads and express ways, police and security, defence and administration, etc. The focus of the expenditure structure at different levels varies, so is the depth and emphasis of expenditure in different countries.Given the economic development stages and fiscal revenue institution, the aggregate fiscal expenditure stands out as an external constraint in studying one nation's fiscal expenditure structure. In the study of expenditure structure in China, priority goes to study on the aggregate level and its variation of expenditure in China. Based on the empirical analysis of historical data, the aggregate level, growth rate and elasticity of government fiscal expenditure are reviewed. Since the implementation of economic reform and opening-up, Chinese government's aggregate expenditure level increased, while the growth rates of expenditure (both central and local government) went unparallel. Based on China's 1980-2005 historical data, an econometric model is created to analyze the relationship between fiscal expenditure and economic growth, only to find that the two are highly correlated, with the P=0.00. The reasons may be as follows: the data in this period covers that of nearly 20 years within which China switched from planned economy to market economy, and also covers nearly all aspects of national economy. The expenditure efficient reaches 1.20, which means within the sample period the expenditure grows slower than national economy. Especially in the later part of this period, the economic growth relied less on the expenditure, meanwhile the expenditure switched its emphasis from economic field to non-profit field, and the contribution to economic growth declined gradually.In the analysis of China's fiscal expenditure structure, this thesis proceeds according to the classification of fiscal expenditure. The empirical study shows that1. the proportion of economic construction expenditure shows annual decline but still remains high; the proportion of education shows steady rise; the proportion of national defence shows steady rise; the proportion of administration expenditure also increases.2. transferable expenditure takes much less in proportion than government purchase expenditure. Among the transferable expenditure, price subsidy, social welfare, debt and interest payment increase annually, while those used to subsidize enterprise loss decrease annually. Problems in current fiscal expenditure structure are summarized as follows: financial inadequacy and expenditure inefficiency; frequent government intervention and high fiscal pressure; government default; sudden increase of expenditure on administration reinforcing the fiscal burden, etc.. Reasons for the above problems are summarized as follows: unclear definition of expenditure scope in the market economy system; deviation of expenditure responsibility from sector budgeting, causing more serious problems; unclear expenditure structure between central and local government; severe flaws in fiscal expenditure management; incomplete fiscal expenditure management and control mechanism.Those factors that may determine or influence the expenditure structure must be taken into full consideration. With reference to all kinds of welfare measuring criterion in welfare economics, based on the index system framed to cover all the variables influencing the social welfare, issues of expenditure structure measurement are discussed from the perspective of public product supply. According to those welfare measuring criterions, including the majority's maximum interests, utilitarianism, Pareto criterion, potential compensation criterion, social welfare function standard and so on, this thesis proposed that expenditure structure optimization should aim at welfare improvement. Based on the social welfare function, a measuring index system on fiscal expenditure structure is built to analyze China's current situation from the perspective of both the economic and social indexes. In addition, after discussing how to measure the expenditure structure from the perspective of public product supply, analyzing the change in public product expenditure scope system, and taking into consideration the problem of effective supply of public product, this thesis suggests that China's expenditure structure can be perfected by improving public product supply.On the basis of incisive research on China's fiscal expenditure structure, the author presents the following ideas and solutions to optimize expenditure structure:First, rationally define the scope of expenditure and optimize expenditure structure. By studying the expenditure structures of Asian and western nations, this thesis examines these countries fiscal expenditure scope and suggests to clearly define the expenditure items and directions, under the principles of efficiency, equity and stability.Second, fulfill government functions, rationally define expenditure. This thesis clearly proposes that government functions consist of two aspects, the economic management function (rational allocation of resource, income redistribution, economic stability and development), and the social function. Among these two functions, the optimization of expenditure structure should aim at further fulfilling the social function, mainly including establishing and perfecting social economic operation regulations, promoting healthy development of social economy; harmonizing social interests, maintaining social equity and stability, improving the level of social security and social insurance; emphasizing ecosystem construction, and creating sustainable ecosystem. Beside, relationship between expenditure structure adjustment and optimization is explored from the perspective of institution of fiscal capacity of public sections..Third, optimize China's expenditure structure specifically. This thesis presents Countermeasures for structure optimization respectively from the perspectives of administrative expenditure, economical expenditure, and public & social service expenditure. What's more, this thesis also explores the institutional adjustment in budgeting system, government procurement and centralized exchequer management to guarantee the optimization.Under the guidance of Marxian dialectic philosophy, integrating normal analysis with empirical analysis, quantitative analysis with qualitative analysis, lateral analysis with longitudinal analysis, the author analyzes the existing problems in China's expenditure structure and explores the direction of, and the optimization approaches to, expenditure structure in China.In this thesis, the author considers the following issues in a new perspective:Firstly, problems of the measurement of expenditure structure are analyzed from various perspectives: with reference to all kinds of welfare measuring criterion in welfare economics, based on the index system framed to cover all the variables influencing the social welfare, and from the perspective of the supply of public product.Secondly, based on study of the institutional transition on fiscal expenditure structure, analysis is conducted on expenditure structure, both theoretically and empirically. On the basis of empirical studies on the dynamic development of expenditure structure in both China and other representative countries, general rules for the development of expenditure structure are concluded, which will provide positive help for the optimization and improvement of China's fiscal expenditure structure.