Empirical Study On The Impact Of Fiscal Expenditure On Household Consumption In China

Consumption,investment and net export have become "the three carriages" whichstimulates economic growth. In fact, investment is a derived demand from consumption. Ifthere is no support of consumption, the investment will become ineffective investment. Netexport is even not enough to keep economic sustained growth, because it is vulnerable toaffected by international trade partners economic prosperity condition and puzzled byinternational trade friction dispute. Therefore, consumption is the final demand whichstimulates economic growth. On the contrary, Chinese economic growth is "drived byinvest,pulled by export". Household consumption is serious insufficient in China. In orderto deal with the global financial crisis in2007, government launched a total4trillion Yuanpublic investment program in China to boost domestic consumption. However, faced theexpansion fiscal expenditure policy, people have some doubts: Whether the expansion offiscal expenditure crowed-out household consumption or not. If not,to what extent doesfiscal expenditure promote household consumption. Therefore, under the background ofChina's economic transition, from three levels such as fiscal expenditure scale, structureand uncertainty, studying the effect of fiscal expenditure on household consumption hasbecome the writing purpose of this paper.On the basis of previous studies, this paper has theoretical analysis and empiricalresearch on the impact of fiscal expenditure on household consumption in China. In theterms of theoretical analysis, this paper review and comment on the household theory andthoughts of the main school, and make dynamic numerical simulation on the relationshipbetween fiscal expenditure and household consumption in China through dynamicstochastic general equilibrium model. In the terms of empirical study, with data afterreform and opening-up in China as sample, this paper makes a systematic analysis on theimpact of fiscal expenditure scal, structure and uncertainty on household consumptionthrough front panel data econometric method. Through the study, some conclusions can be draw.Firstly, Fiscal expenditure scal or gross has a crowding-in effect on householdconsumption in China. The expansion of the current fiscal expenditure does not crowd-outhousehold consumption instead of crowding-in household consumption to a certain extent,which affirmed the expansionary fiscal policy increases domestic demand effectively.Secondly, the expansion of government spending does not lead to a sharp drop in thecrowding-in effect of fiscal expenditure toward household consumption. On the contrary,with tax burden and debt scal increasing, the crowding-in effect of fiscal expenditure tohousehold consumption is gradually weakened and even changes into the crowding-outeffect. This means government takes tax or debt financing to stabilize fiscal expansionwhich may has a crowding-out effect on household consumption, thereby reducing itseffectiveness in the domestic demand expansion.Thirdly, fiscal social expenditure has significant and persistent crowding-in effect onhousehold consumption and the crowding-in effect shows some differences between urbanand rural, some differences in areas and some differences in different income levelhousehold. This means public welfare resources dispose unevenness in China and socialexpenditure differences have caused the gap between urban and rural householdconsumption, the gap in areas household consumption and the gap in different incomelevel household consumption.Fourthly, the impact conduction path of fiscal expenditure uncertainty on householdconsumption is such as: the public welfare system uncertainty caused by economictransition→fiscal expenditure expected uncertainty of household to government in publicwelfare field→the future expenditures expected uncertainty of household→increasingprecautionary saving motive and expected liquidity constraints→reducing consumption.This is supported by empirical testing on empirical data in China.Of course, we not only need to make a objective, impartial, scientific evaluation forexpansion fiscal policy increasing household consumption, but also it is important to sumup experience and lessons in China's economic transition, to find insufficient of the currentfiscal expenditure and to put forward further perfect suggestions for future fiscalexpenditure. Therefore, according to research conclusions, this paper put forward sixcountermeasures and suggestions:(1) reasonable controlling government consumptionexpenditure scale, making the stability of the current economic situation;(2) further optimizing the fiscal expenditure structure, highlighting the people's livelihood conceptand consolidateing the achievement;(3) actively adjusting the direction of fiscalexpenditure, contracting the consumption gap between urban and rural and in regions;(4)scientific determining the fiscal expenditure target population, increasing policy flexibilityof operation;(5) accelerating to perfect social security system, to eliminate worry ofhousehold consumption;(6) strongly improving the public governance mechanism,improving the efficiency of fiscal expenditure.Admittedly, due to the restrictions of personal academic literacy, the research workstill remains some shortcomings. Therefore, the author presents the limitations of this studyand the future research directions in the last part of this paper.