Transfer Payment,Infrastructure Investment And Policy Choice Under The Economic Downward Pressure

In recent years, scholars have different opinions on the advantages and disadvantages of China's large-scale transfer payments and infrastructure investment policy. Some scholars believe that under the stimulation of transfer payment, the infrastructure investment couldn't promote the economic growth. They put forward to change the structure of the transfer payment to increase investment in human capital and scientific. In this paper, we explore the relationships between the central transfer payments, local infrastructure investment and economic growth by building a dynamic game model of endogenous economic growth and regression analysis of the provincial panel data from 1994-2014.Both theoretical and empirical results show that the infrastructure investment is different on promoting the East and West economic growth, but compared with the relative human capital and other investment, the role of infrastructure is more significant. And in the face of severe economic downward pressure and various potential risks, it is not appropriate to deny the current transfer payment and infrastructure investment policy. In the premise of maintaining policy continuity, we should take an appropriate and different adjustment for different regions to create time and space for steady growth, adjusting structure. The main characteristics and conclusions of this paper are as follows:On the relationship between transfer payment, infrastructure and economic growth, this paper uses mathematical model and empirical analysis to explain this problem. At first we structured a Stackelberg dynamic game model to analysis the optimal selection strategy of the central government, local government and private sector under the current fiscal system. We calculated the optimal tax rate, transfer payments scale and infrastructure investment size of central government and local government. And then we find that when the congestion degree of infrastructure between the provincesexist difference,central government can stimulate the infrastructure congested areas to invest infrastructure by increasing the transfer funds. By this way the total output of country will be promoted. Then we demonstrate the transfer payment and infrastructure investment can stimulate the economic growth significantly by GMM dynamic model, and this pulling affect is differ between the east-central-west regions by conduction model and regional GMM model. At last we found that under the economic downward pressure in China, compared to investment in human capital, infrastructure input can be faster to stimulate the economy by constructed the index of policy.In the meanwhile, there are many associated problems through the policy implementation process of transfer payment and infrastructure investment. This study mainly explain the relations of transfer funds, investment scale, corruption and overcapacity by theoretical analysis and empirical analysis.At first we find that the transfer payment and especially the infrastructure investment can significantly stimulate corruption when we use the official crime cases as the proxy variable to measure the degree of government corruption. So we suggest the central government should be pay attention to the corruption and maintain financial discipline, improve the actual effects of fiscal expenditure by formulating strict capital regulation and investment project approval process. Secondly, the transfer payment system reform, expansion of the size of the local debt, land problems and overcapacity are the hot issues in China. We verify that the expansion of the transfer payments and local government debt scale boost the local government income and then the government pay land subsidy to attract external investment, but this subsidy cause the excessive investment and overcapacity. We analyzes the effect of transfer payment and local debt on land pricing, and demonstrate the mechanism of land price in investment promotion by constructing the government financial resources-- land price-- enterprise investment model. We found that the more transfer funds government gets the more land price lower, but when the local debt scale is less than the optimum size, debt decrease the price of land, otherwise it will improve. While land prices directly affect investment in the region, the lower price the more able to gain an advantage in the regional competition. Then we illustrate that the expansion of government fiscal resource decreased land price by GMM model and the lower price caused excessive investment by Tobit model. At last we suggest the local government should be pay attention to solve overcapacity.