The Empirical Research About The Effect Of Local Government Investment On Inflation

Reform and opening up, especially since the fiscal decentralization, China’s local governments have a strong impulse to invest in the current system, the large-scale investment in the local government promote to the rapid development of China’s economic. At the same time, but also brought fluctuations to China’s macroeconomic performance, affect the sound operation of China’s macroeconomic, impact on people’s lives and even social stability. Therefore, at the time the local governments have introduced a massive investment program, research local government role in promoting investment on inflation, has important practical significance. This paper first from public choice theory and game theory analyzes the investment behavior of local government in China, and a brief analysis of the financing behavior of local government. Based on the analysis of China’s local government investment behavior., I research the local governments to invest, as well as the transmission mechanism of inflation, combination of theoretical analysis and empirical analysis, to explore the impact on inflation of local government investment analysis.Before local government investment on inflation, I focus on the analysis of the investment behavior of local governments in China, explain why China’s local governments have a strong impulse to invest, why local governments large scale investment in fixed assets. On basis of this analysis, the cause of the local government investment and cost-push currency push inflation is analyzed in theory, then analyzes the local government investment on inflation--three transmission mechanism of land leasing, tax increases, local financing platform, then analyzed the case of inflation in China since the reform and opening up. Finally, the situation of China’s local government investment and inflation since the introduction of reform and opening up from the longitudinal and transverse, combined use of econometric models from1996to2010, the data to verify the degree of influence of the local government investment on inflation. The results show that the investment behavior of the local government in China has pushed up the level of inflation. On the basis of the above analysis, this article concludes with a fundamental measure as well as currently viable solution to reduce local government investment impulse and the frequency of the high incidence of inflation to achieve the stability of the macroeconomic operation.