China's Fiscal Expenditure Of Urban And Rural Residents' Consumption Impact Study

Improve consumption of residents is the fundamental objective of economic construction and one of the important ways to improve the economic structure and change patterns of development in China. However, China’s long-term weak consumption has seriously hindered a healthier development of our economy, which distorts the structure of national economy and even the social structure. Government expenditure is of broad interests among factors that affecting residents’consumption. Thus the relationship of government expenditure to residents’consumption has been one of the attracting themes for researching. Since China is a socialist market economy country, the government has been affecting the economy broadly and deeply. It is of vital significance to study the impacts of our government’s expenditure on the citizen’s consumption. The paper has six parts. In chapter Ⅰ the background and significance of the study is introduced. In chapter two existing literature on the subject are reviewed. The theoretical basis of the study is then discussed in the third chapter. In chapter four, we analyze the fiscal expenditure and consumer spending with the historical data sine the reform and opening up. In chapter five, data from the year1978to2010of China are used to empirically analyze how the proportion of the fiscal spending in GDP affects the consumption ratio in GDP and how the growth rate of fiscal spending affect the growth rate of consumer spending in the whole country and in urban or rural area. The results show that the proportion of fiscal expenditure in GDP crowds out the proportion of household consumption. And the growth rate of consumption has negative correlation with the growth rate of government expenditure. The investigation of the role of fiscal expenditure on the consumption of urban and rural residents shows that the crowding-out effects is more notable on urban citizens than on the residents of the whole country and smaller on rural residents. The growth rate of rural consumption even has positive correlation with growth rate of fiscal expenditure. From our study, a conclusion can be draw that it is impossible to enhance the consumption rate by expanding government expenditure in the whole country and in urban areas. Further more, the expanding government spending would less the consumption ratio in GDP and slow down the growth rate of private consumption. However, increasing government expending has positive effects on residents’ consumption of poor rural area. We give all the conclusions and suggestions in chapter six.