An Empirical Study On The Relationship Between Fiscal Expenditure And Economic Growth In China

Since1978, China has established a socialist market economic system, which hasmade brilliant achievements. The total GDP ranked second in the world. In recent30yearsthe average growth rate of economic is more than11%. But we must also recognize thatthere are some problems, such as our per capita GDP has not yet beyond the middle-income trap.Also we should think the scientific way to development and make a soundand rapid economic growth.In theory, from the point of total supply and total demand, this paper explained thegrowth of fiscal spending affecting the overall economic growth by factors such asincreased investment in social productivity, labor capital and so on. In terms of data，thispaper uses the total national expenditure annual data of1978-2012, which is budgetaryexpenditures (Statistical Yearbook expense). Due to the government revenue andexpenditure classification reform was formally implemented in2007, the new governmentbudget and settlement of accounts are in accordance with the reform statistics, theprevious large projects of the Statistical Yearbook of the previous large projects will besplit into several small items, which will cause errors in calculation range. So in thisarticle the change after the2007reform of the major items of data are classified inaccordance with the new requirements, but inevitable bias may still exist.In this paper, the empirical method is proposed the theories of Arrow in1990, basedon the study of the relationship between the size of fiscal spending and economic growth,the first step, according to whether the same trend of single-integration test. The secondstep, carried on Johansen cointegration test. The third step is to find the optimal lag orderto establish a pulse vector model, derived VAR equation, the impact test pulse betweenthe two variables. Finally, Granger causality test to detect the presence of a causalrelationship between two variables. In examining the relationship between the structure offiscal expenditure and economic growth, were selected our first industry, secondaryindustry and the tertiary industry increased as the dependent variable, the associatedexpenditure items as independent variables, pulse vector analysis, respectively, the roleand structure of fiscal expenditure measure lag effect on China’s economic growth. Eventually we came to the conclusion is: find Granger causality of these variables,that is, economic growth is the Granger cause rise to fiscal expenditure, but also the valueof the contribution of fiscal expenditure reached80%of GDP within10years. But theeffect of the fiscal expenditure is not very significant. In addition, in terms of fiscalexpenditure structure, we find the first industry and agriculture spending no causalrelationship, possible reason is the proportion of agriculture spending to GDP is too small.Positive effect on economic construction spending is much higher than the secondaryindustry tertiary industry, both lag of2-3years. Effectiveness of science, educationspending for the second and third industries are positive, but the tertiary industry lag farless than the second industry, the possible reason is the second industry higher capitalrequirements for the training of labor. Finally, administrative expenses only in the shortterm is more conducive to the development of the tertiary industry.