Spatial Econometric Analysis Of The Relationship Of Provincial Government Spending And GDP

With the gradual deepening of financial reform, China's central-local fiscal structure has been preliminary improved. Local governments have a relatively independent finance, and also local economic and social aspects of a number of development goals and their own local interests. However, due to tax system flaws, the tax revenue distribution between central and local governments is not reasonable and the power and authority at all levels of government do not match. In the main characteristics of investment-led economic growth, the local governments have excessive investment impulse because of chasing GDP performance, which often leads to local government revenue deficit.At present, accompanied with the increasing international financial crisis and its serious blow to the world economy, China's economy has fallen into a difficult situation. Facing to the current situation, the central government has drawn out Ten Measures and the two yeas-4 trillion yuan investment plan to stimulate the economy. And in the 4 trillion yuan local governments must provide as high as from 2 to 2.5 trillion yuan as matching funds of central government spending. In that case, whether there was a link between different regions'fiscal expenditure? How is the relationship between government expenditure and economic growth if the Neighbor Competitive Effects added? These are issues that need to be examined.First, we introduce the Spatial Lag Model and Spatial Error Model. Then, we use them and endogenous growth model to do econometric analysis with the data of 1997 -2006 fiscal expenditure of provincial governments and provincial GDP. Next, we compare the results with that from ordinary least squares (OLS) regression analysis. At last we make a conclusion that the increase in GDP of one province will pull all the surrounding provinces, but the impact of increase of local fiscal expenditure to the surrounding provinces'GDP is not significant.