On The Mechanism Of Private Consumption Dilemma

As global financial crisis deepen,external markets become more uncertain than before,which makes China's growth unsustainable.To implement the concept of mclusive growth requires that people enjoy fruits of growth equally.Hence,increasing private consumption to make GDP and private consumption growth reasonably can help people enjoy more fruits of growth and be the best way to enhance growthaccording to the concept of inclusive growth.This paper analyses problems mentioned before from the view of government expenditure and its structure and follows the logics as follows:decentralization-preference of government expenditure—private consumption.Firstly,we employ descriptive statistical method to tell the truth of the dilemma of China's private consumption.We find that:(1)the private consumption rate declines sharply as economy develops,and is not consistent with its development stage.(2)the structure of government expenditure doesn't match what families require well.(3)income of residents increases less than GDP and family's saving.China's growth is driven by investment,which make resident's income grow more slowly than GDP.The incentive effect of decentralization imposed to local government causes them not to increase consumption expenditures,which makes residents save more Secondly,we incorporate productive government expenditure share "s"in Barro(1990)to demonstrate how government expenditure can affect private consumption and compare differences between government expenditure who pursuits different goals.We found that:(1)Government expenditure influences private consumption through income effect and substitution effect.Income effect means that productive government expenditure can boost private consumption by increasing family's income.Substitution effect means that as productive government expenditure grows,consumption government expenditure become less,which make the supply of public goods decrease and the price of public goods increase.and families should save more in order to finance public goods.(2)The relationship between productive government expenditure and growth is positive,while relationship between productive government expenditure and the presentative family's utility is uncertain.Government with different goals may choose different structure of government expenditure.Government who maximizes growth rate will make productive government expenditure as much as possible.If government pursuits the maximization of presentative family's utility.he will trade-off between income effect and substitution effect,and then choose an optimal structure of government expenditure.(3)Decentralization make local government have great incentives to boost GDP.Local government wants to attract mobile factors by the means of export to increase GDP.The imiserizing growth of export causes income of family to increase more slowly than GDP.An increase of productive government expenditure means a decrease of consumption productive expenditure,which decreases the supply of consumption public goods.Because of inelasticity of demand,consumers should pay more and finance it through saving.High growth rate and low consumption rate coexist because China's decentralization motivates local government to choose a unreasonable expenditure structure.Thirdly,we select China's 28 provinces from 1995 to 2009 as a sample to carry out an empirical test on the relationship between fiscal decentralization and productive government expenditure,consumption government expenditure and the bias of the structure of government expenditure.We found that:(1)Fiscal decentralization correlates with productive government expenditure positively.If the degree of fiscal decentralization increases one unit,the productive government expenditure share increase 0.099?0.099 and 0.137 unit respectively.The coefficient of government competence is positive but not significant.The coefficient of interactive term between government competence and fiscal decentralization is negative.The marginal effect of government competence and fiscal decentralization on productive government expenditure is positive.(2)Fiscal decentralization correlates with consumption government expenditure negatively.If the degree of fiscal decentralization increases one unit,the consumption government expenditure share decrease 0.043?0.039 and 0.019 unit respectively.The coefficient of interactive term between government competence and fiscal decentralization is not significant.(3)Fiscal decentralization correlates with the bias of the structure of government expenditure positively.If the degree of fiscal decentralization increases one unit,the bias of the structure of government expenditure increase 0.155?0.153 and 0.024 unit respectively.The coefficient of interactive term between government competence and fiscal decentralization is negative.The marginal effect of government competence and fiscal decentralization on the bias of the structure of government expenditure is positive.Fourthly,we incorporate the marginal revenue of labor with Mincer equation to analyses the relationship between government expenditure and wage,and then carry out an empirical test.We found that:(1)The level of human resource investment correlates with wage positively.Given interactive term,If human resource investment increases one unit,the wage increase 6.418%in the middle,2.12%in the west,1.963%in the east and 1.252%across country.(2)The level of private capital correlates with wage positively.Given interactive term,If private capital increases one unit,the wage increase 0.769%in the middle,0.542%in the west,0.495%in the east and 0.638%across country.(3)The coefficient of interactive term between public capital and marginal revenue of product is negative.As marginal revenue of product increases,the marginal effect of Public capital on wage becomes smaller and smaller.The marginal effect of public capital on wage is negative in west and across the country.(4)Without the interactive term,the coefficient of marginal revenue of product is positive.Given the interactive term,the coefficient of interactive term between public capital and marginal revenue of product is negative.the coefficient of marginal revenue of product is also positive.Fifthly,Given fiscal decentralization,This paper carry out an empirical study on relationships and mechanism between government expenditure and private consumption with China provincial panel data from 1995 to 2009.We found that:(1)government expenditure has an effect on private consumption through income effect substitution effect.The change of private consumption rate is the net effect of income effect and substitution effect.Because of FDI crowding domestic investment out and locking-in effect,the income effect is smaller than substitution effect.If productive government expenditure increases one unit,private consumption decrease 0.3%?0.29%?0.284%and 0.272%respectively.Decentralization give local government prefer productive government expenditure than consumption government expenditure.When refer to productive government expenditure,government neglects the growth of return on production factors.when"s" is small,income effect is larger than substitution effect.When s increases,private consumption also increases.when s is optimal,income effect is smaller than substitution effect.When s increases,private consumption decreases.Empirical results show that government expenditure is an complementary of private consumption.If government expenditure increases one unit,private consumption increase 1.147%.The relationship between government expenditure and private consumption is not simply linear,but exhibits inverse "U".