Study Of The Economic Growth Effects Of Public Spending

It is extremely important for China, which is still a developing big country, to keep the pace of economic growth. This paper tries to analyze the relation between fiscal expenditure policy and economic growth from both theoretical and empirical aspects, with respect to the increasing ratio of government expenditure to GDP and growingly academic divergence on the active (expansive) fiscal policy implemented by central government in the recent five years.At first, a comprehensive conclusion on the relevant theories of fiscal expenditure and economic growth is made in the first chapter. Then a new concept of generalized individual consumption is presented and an endogenous economic growth model with Chinese features is developed, by which this paper theoretically investigates the relation between the expenditure scale, composition and economic growth. In the following chapter the empirical outcome points out China's fiscal expenditure does good to economic growth. Furthermore this paper finds China's optimal fiscal expenditure scale should be 20.55 per cent, in views of the fiscal expenditure; With respect to the large amount of out-budge government expenditure, if the object is widened to the whole public expenditure, this paper, however, finds the China's optimal fiscal expenditure scale should be 29.80 per cent. But the actual public expenditure scale is only 24.1 per cent by 2000, which shows that China's public expenditure is under optimal situation and the active fiscal policy nowadays should be available. At last, the paper investigates the composition of fiscal expenditure and makes the conclusion that China's expenditure composition should be adjusted, investing more in the constant projects than in the productive projects.The conventional econometrical method may lead to spurious regression so that the preceding conclusion is under the ground. In order to avoid the negative effect, this paper in the fourth chapter verifies the related conclusion by applying the latest VAR model and cointegration theory, and empirically finds China's active fiscal expenditure is beneficial to long-run economic growth through the decompositions of impulse response.