A Study On The Macroeconomic Effects Of Government Spending Shock

Government spending is one important tool of fiscal plicy,which plays an irreplaceable role of macroeconomic regulation and control.Our macroeconomy experienced several boom and burst since the reform and opening policy,while fiscal discretion stabilizes macroeconomy each time.In 2014,China has entered a "new normal" state.Under the background of economic growth rate shift,economic structural adjustment and pre-stimulus digestion,economic growth rate dropped to 7.30%;In 2015,the economic situation become worsen,GDP growth rate slipped below 7%.In order to cope with the severe economic situation,on the one hand,the government implemented the supply side reforms to adjust the economic structure and foster economic growth,on the other hand,Xi Jinping put forward the "demand-side management",hope to enhance effective demand through the positive fiscal policy and monetary policy.It's an inevitable choice for the government to increase spending and investment.Under this background,studying the macroeconomic impacts of government consumption and investment not only can enrich our knowledge,but also is helpful for policy formulation and effectiveness.However,the existing literature on the effects of government spending has many deficiencies.For example,a lot of literature does not distinguish different types of government spending;do not consider the effects of government expenditure for different industries;pay no attention on the important feature of modern economic production,the input-output production structure,which affects the impacts of government spending.Accordingly,we construct three new Keynesian DSGE models including manufacture and service sector to analysis the effects of government spending shocks in three cases: government consumption shock without input-output structure,government consumption shock with input-out put structure and government investment shock.In this paper,we use impuls reaction to analysis the dynamic characters of main macroeconomic variables.By defining and calculating the aggregare and structural government spending multiplier we get the quantitative effects of government spending.We find that government consumption affects the macroeconomy through four channels: induced-demand,factor flow,government spending interior interact and wealth effect.When government consumes more manufacture goods,the demand of manufacture sector increases,capital and labor used by manufacture sector rise,thus the manufacture sector output increases.The demand of government consumption of service goods decreases and service sector output declines.Private consumption and investment are crowded out.Aggregate labor supply increases.When government consumes more service goods,government consumption of manufacture goods is crowded out,manufacture output declines evidently.The demand of service goods rises,which induces the increase of service output.Aggregate consumption and investment are crowded in,while aggregate labor is crowded out.After defining and calculating aggregate and structural government spending multiplier,we find the quantitive effect of government spending.When input-output appears in the economy,besides four channels above,the increase of government consumption affects macroeconomy through one additional channel: demandcirculation.When government consumes more manufacture goods,as the existence of input-output structure,the demand of manufacture goods is amplified and the demand of serviced goods is reduced,compared with the situation of non-existence of input-output structure.When government consumes more service goods,government manufacture consumption is crowded out evidently.As input-output structure exists,the demand of manufacture goods is reduced more.In the two cases,output is different with added-up output.After calculating the multiplier,we also find the quantitive effects of government spending.Besides,we study the macroeconomic effects of government investment.First,we estimate the output elasticities of public capital in manufacture and service sector.The elasticities mean that the externality of public capital is evident.The externality of public capital in manufacture sector is more evident.Second,government investment affects economy through five channels: induced-demand,factor flow,government spending interior interacts,the externality of public capital and wealth effect.When government increases investment to manufacture sector,manufacture sector output increases,service sectore output declines and aggregare output increases.Aggregate government and private investment rises.Labor supply increases and consumption is crowded out.When government increases investment to service sector,manufacture sector output increases,service sectore output declines and aggregare output increases.Aggregate government and private investment rises.Labor supply increases and consumption is crowded out.After calculating the aggregate and structrual multiplier,we also conclude the quantitive effects of government investment.