The Impact Of Livelihood Expenditure Of Local Government On Urban And Rural Residents' Consumption

Since the reform and opening up, China's economic development has made remarkable achievements. The GDP has maintained high growth; the living standards of residents have been rising. While at the same time, there are still many problems in the economic and social development. The "high investment and low consumption" driven pattern of economic has caused the structural imbalance of economic growth; the lack of social security mechanism has accumulated lots of social conflicts. In this case, it is particularly important to find a way which can not only promote consumption but also improve people's livelihood. However, the market is unable to adjust itself to this effect. So, the inevitable choice is that the government use fiscal policy to intervene to compensate for market failure. And, expenditure is generally considered to be the most direct and effective fiscal policy tool.Based on the literature review, the existing researches are mainly concerning the relationship between fiscal expenditure and residents'consumption. But there are hardly any articles which clearly study the impact of livelihood expenditure on residents'consumption. Scholars agree that accumulation of contradictions in the people's livelihood and unsound social security system have led to excess precautionary saving and inadequate consumption, but scarcely anyone who apply empirical analysis to prove this inference. This is just the starting point and focus of this article.First of all, this article theoretically elaborated the impact of livelihood expenditure on residents'consumption and clarified the relationship between the finance of people's livelihood and the public finance. Next, the change process of the livelihood expenditure of local government and the consumption of urban and rural residents were described. Then, on the basis of Consumer Intertemporal Substitution Model, this article constructed an econometric model about the relationship between livelihood expenditure of local government and residents' consumption and used System GMM to test the panel data of China's 31 provinces from 1995 to 2009. The results showed that, the increase of local government's expenditure spending on the livelihood of people could significantly stimulate the growth of consumption of urban and rural residents. Thus, not only the contradictions in people's livelihood areas can be solved, but also the economic growth can be achieved through consumption growth. Finally, against the problems about the lack of livelihood expenditure of local government and the inadequate consumption of residents, this article proposed four policy recommendations:to make public finance tilt to the livelihood of people; to reform the incentives and performance evaluation system of local government; to raise income levels of urban and rural residents and to broaden the means of provision of public services.