The Analysis Of Effect Of Public Expenditure On Resident Income

Since the end of 20 th Century, despite the rapid growth of gross output of China’s economy, share of resident income in national income drops from 2000’s 64.2% quickly to 2007’s 57.5%, which attracts attentions on the cause of the declining of income shares of resident, within which a series of researches conclude the reason mainly to insufficient public expenditure. However, most of these researches drew their conclusion by positive and static analysis rather quantitative and dynamic ones.To better evaluate the effect that public expenditure casts on resident income, a multi-sector model is applied and expanded to include heterogeneous industries of China based on 2007 China’s macro-economic and public-finance data, and to analyze how the share of public expenditure in national income and composition of public expenditure effect China’s share of resident income in national income during 2008-2012. What’s followed is numerical experiments trying to find out all possible combinations of public expenditure policies and their so-induced share of resident income.The main conclusions are, first, the share of public expenditure in national income and composition of public expenditure cause China’s share of resident income in national income from dropping 5.42% during 2008-2012. Second, a rise in the share of public expenditure in national income rises though not linearly the share of resident income, as pointed out by previous researches. Third, a higher proportions of public expenditure in 1st and 3rd industry means a higher share of resident income in national income. For the last two conclusions, specific functional relationships between certain share of public expenditure in national income and composition of public expenditure and its relative share of resident income outcome has been specified.