Government Subsidy And Overcapacity

Domestic literatures research on macroeconomic fluctuation and overcapacity are generally independent of each other, but considering the close relationship between them, in order to find the deep reason of overcapacity and its role in the macroeconomic fluctuation, this paper add capacity utilization rate into the RBC model as an endogenous variable of manufacturers’decision. Discuss the impact of the exogenous technology shock, government expenditure shock and government subsidy shock on macroeconomic fluctuation. Numerical simulations of the model results in better capturing the real main economic variables fluctuations as well as the synergistic effect with the output, especially for the fluctuation of output, capital stock and residents’ consumption, this model can explain about the90%fluctuation. Variance decomposition results show that the shock of exogenous technology and government subsidy are the main reason for the fluctuation of main economic variables and capacity utilization rate, the shock of government expenditure influence little, but has a longer duration; the diagram of impulse response function for policy experiment shows the endogenous technological shock and government subsidy shock will improve capacity utilization in the short term, but subsequently cause long term overcapacity phenomenon, government expenditure shock doesn’t cause overcapacity. In order to alleviate and solve the present Chinese economic fluctuation with the illness of overcapacity, the financial system, government management, land system, credit system and investment system need further reform. In order to solve the phenomenon that local government’s intervention microeconomic behavior leading to overcapacity and economic fluctuations, central government need to start from eliminating the motivation and main method in the current situation.