Research On The Macroeconomic Effects Of The National Debt And Government Expenditure In China

Keynesianism emerged after The Great Depression provides convincing theoretical evidencefor administrating economy through using financial policies across all countries. Many marketeconomy countries finance for deficit through national debts and counter-cyclically regulate theirmacro-economies through adjusting financial expenditure to realize the policy goals such as thehigh rate of employment, slight economic fluctuation, stable price without inflation and sustainableeconomic development.This research aims to investigate the macroeconomic effects of Chinese financial policies.Taking into account that the implementation of financial policies includes financial income andexpenditure while national debts and government expenditure are two main aspects of offsettinggovernment deficit and, thus, adjusting financial expenditure, the research applies variableparameters model, variable coefficient panel data model, SVAR, DSGE to investigate themacroeconomic effects of national debts and government expenditure from two perspectivesincluding debts and government expenditure. The research is composed of six chapters as follows:In chapter1introduction, Firstly, the paper introduces the research problem, defines theboundaries of research problems and discusses the research motivation. Secondly, we explain theresearch background and summarize the theoretical and practical significance of investigatingmacroeconomic effects of national debts and government expenditure currently. Thirdly, weexplicate research methodologies and structure briefly. Finally, innovation, limitation and futureresearch are discussed.In chapter2literature review. In this part, we review the theoretical and empirical research onmacroeconomic effects of debts and government expenditure. Based on theoretical research, thechapter comprehensively reviews and compares the arguments of Keynesian, Monetarism,Neoclassical, Ricardian economics from the relationship between national debts and consumption,that between national debts and private investment and output, that between governmentexpenditure and output and that between government expenditure and private consumption andsavings, and clarifies the track of the related research, providing solid theoretical foundation forfurther empirical research. In addition, the paper reviews the empirical research such as RicardianEquivalence Theorem, the relationship between national debts and interest, and the research in theframework of DSGE, providing methodologies for further empirical research.In chapter3analysis of dynamic elasticity of effects of national debts on consumers’ consumption. Firstly, the research empirically applies variable parameters model based on statespace equations to examine the dynamic elasticity of effects of national debts on residents’consumption from1981to2011. The results demonstrate that national debts do not influence ruralconsumers’ consumption whereas they would produce positive induced effects on urbanconsumers’ consumption in long run. But in short run, the soaring quantity of national debts wouldproduce a negative substitution effect on urban consumers’ consumption. The trend of elasticitycoefficient reflects that national debts only produce a slight influence, which even diminishes insome phrases. Therefore, the way to release national debts is supposed to be adjusted to stimulateconsumption, expand domestic demand, and avoid negative impacts caused by the tremendousvariation in quantity of national debts.In chapter4the research on the dynamic impact effect of national debts on residents’investment and output. In this chapter, based on the research on effects of national debts on privateinvestment, we apply SVAR to analyze the long and short effects of national debts on privateinvestments and outputs and preclude the inconclusive “interest rate”, leading to significantconclusions and advices for policy.In chapter5macroeconomic effect of government expenditure. Based on New KeynesianDSGE model and Chinese current economy, this chapter incorporates heterogeneous consumersand quantity of currency in Chinese currency policy, proposing a DSGE model which is morevaluable for Chinese economy. Moreover, based on the model, this chapter investigates thefeedback mechanism in the effects of government expenditure and bonds on tax and discusses theeffects of government expenditure impact on Chinese macroeconomic behaviors.In chapter6macroeconomic effects of government expenditure under different financialpolicies. Based on the model proposed in chapter5, this chapter emphasizes the influence of policyrules under different government expenditure rules on macroeconomic effects caused bygovernment expenditure. We apply Bayes estimation to compute the parameters and compare theextent of the changes of economic variables that caused by government expenditure impact indifferent rules. Additionally, we compare the economic stabilities under different financial policies.Finally, the conclusion is discussed.