Research On The Dynamic Relationship Between Non-productive Fiscal Expenditure And Economic Growth

Since 1979, China’s economy has been developing faster and faster year by year. However, the developing power mainly comes from its resources, capital and cheap labor force. That is to say, it is a kind of extensive economy. In order to build a sustainable, speedy and healthy economy, technology and the nation quality must be put into the first place. Therefore, the Chinese government has taken "Develop the Country through Science and Education" as the basic strategy, which is greatly enhanced in the "Fifteen Five-Year Plan". The importance and effect of the strategy have been witnessed and interested a great number of scholars.The proposal of the strategy promoted public understanding of the truth that "Science and technology are primary productive forces", making people aware of the importance of science and technology and education. The key to revitalizing the nation through science and education is not only to strive to establish a sound science and education system, but also to use technology and educational resources correctly so as to provide better service for economic growth. Currently, in the context of the twelfth five-year plan, we should establish more high-tech enterprises, high value-added enterprises, and enhance the productivity of enterprises and individuals and thus increase the productivity of society as a whole. We should also should pay attention to the development of education, strengthen the education infrastructure, place emphasis on personnel training and use, scientific research and increase support for research work. It is believed that in the next few decades the effect of the strategy will emerge.The world today is information technology, high-tech society. Information technology-based science and technology are bringing to our lives more and more changes. And "Knowledge economy" has entered the historical process of human civilization. More and more countries and companies have realized that science and technology have become the primary factor affecting economic development. The lag in science and technology is now the most serious problem in China. It is also the root of other problems and the bottleneck factor constraining economic development. Therefore we must intensify support in this regard and fully understand the strategic importance of technology and education in order to achieve the nation’s revitalization.This paper mainly focuses on the dynamic relationship between non-productive fiscal expenditure and economic growth both from the theory and solid evidence. And we can say that fiscal expenditure on science, education, culture and hygiene has quite important effect, and even determined role to the economic growth.This paper is structured as follows:Chapter 2 gives an overview of basic concepts related to expenditures. Chapter 3 analyzes the general status of the nation’s science, education, culture and health expenditures from the quantitative perspective. And it specifies the problems and characteristics of various expenditures. Chapter 4 gives an empirical analysis of the dynamic relationship between the expenditures and economic growth. Chapter 5 presents conclusions and recommendations.Based on the analysis of China’s present fiscal expenditure conditions as well as the statistics from 1978-2009, the paper finds out GDP’s roles in various non-productive fiscal expenditure with the help of VECM and IRF, and also finds out different expenditure’s different contribution to the economic growth according to variance. Among the results, the author finds that the education expenditure is of hysteretic nature and has a side effect to the economy in a short term but can also turn to be positive in promoting the economic development in a long period while the expenditure on science, culture and hygiene has very obvious effect quickly.Innovations are:1. Research subject-science, education, culture and health and economic growth.2. Tool model-the use of vector error correction model in the research of expenditure.3. Methodology-the combination of co-integration analysis and impulse response function, which response to long-term trend and short-term analysis respectively.