The Positive Research On The Government Livelihood Consumption Expenditure And The Residents' Consumption

Consumption, investment and net exports are considered to be the three components of Gross Domestic Products (GDP), which are also known to the world as the so-called three carriages driving economic growth. However, consumption demand of the three is generally regarded as the most contributing element, and investment is a sort of demand induced by consumption, while net export is another kind of consumption demand which comes from overseas. Therefore consumption is deemed as the original catalyst for economic growth. Although the consumption demand has been a determinant of the three carriages in China's economic growth for a long period of time, its influence in promoting economic growth becomes less year after year. Since consumption consists of private consumption and government consumption, the insufficient demand of private consumption in China has lowered its overall contribution to the economic development. China is so huge in territory with such a large population that it has an immense market potential. How to transform the potential market resources into real power in promoting economic growth is of significance to China's sustainable development. In the meantime, the proportion of government consumption in the overall consumption has had minor changes. So the influence of government expenditures on consumption demand tends to be stable. In terms of the speed of growth, the growth rate of government expenditure has exceeded the economic growth rate, and the expenditure's increment in the people's livelihood consumption of education, healthcare and welfare has further exceeded that of the government expenditure and the economy growth. The government increase in people's livelihood consumption could enhance the level of public goods and public services provided by the government, boosting private consumption to some extent.In such circumstances, the paper examines the relationship between the government livelihood consumption expenditure and the private consumption both in urban areas and rural areas in China. Firstly, the paper analyzed the present development of private consumption in urban and rural areas and studied current situation of government expenditure in people's livelihood consumption. Secondly, the paper used the econometric model to probe into the patterns how government expenditures in people's livelihood consumption influenced private consumption in urban area and rural area. In the end, the paper proposed some policy suggestions on government spending in people's livelihood consumption to promote the resident's consumption in urban areas and rural areas. The positive analysis of the paper uses the econometric model—Panel data, taking the panel data of 1998—2007 in 30 provinces in China to study the influence which the government people's livelihood consumption expenditure has on private consumption in urban areas and rural areas. The results show that the coefficients of the government people's livelihood consumption expenditure that influenced the consumption of urban residents and rural residents are 0.21094 and 0.097241 respectively. Further positive analysis shows that the coefficients of the expenditure of education, healthcare and social security which influenced the urban resident consumption are 0.864491,-3.025776 and 0.446016. The coefficients of the same expenditure which it influenced the rural residents are 0.517077,-0.849551 and uncertain. This means that the government expenditure in people's livelihood consumption in general produces "crowding-in effect" to resident's consumption in urban areas and rural areas. Based on the positive results, the paper proposes some policy suggestions, such as increasing the government expenditure scale in people's livelihood consumption, enhancing its efficiency, perfecting mechanism related and so on, which can stimulate the resident's consumption in urban areas and rural areas.