A Study On The Impact Of Government Fiscal Expenditure On Residents' Consumption

Consumption, investment and net exports is the troika that drive economic growth. However, the problem of high investment exist in our country generally, and Net exports has been in decline since the 2008 financial crisis. So it is the best choice of our economy to expand domestic demand. Consumer demand in China has been low for a long time, the ratio of consumption has been lower than the international average level. While at the same time, China’s fiscal expenditure scale expands unceasingly, therefore the study of relation between fiscal expenditure and household consumption is of great value. We Construct a general equilibrium model for theoretical analysis in this paper, Then this article use fixed effect model to study the relationship between the government expenditure and resident consumption based on the provincial panel data from 2007 to 2013. We have the following two main conclusions. First, The ascension of Government consumption rate cause a decline in the ratio of consumption. If the government expenditure scale is invariant, the rise of Government consumption rate would result in a decrease in amount for the productive government spending. This will lead to future income growth slower, Which can lead to reduction in consumption. Second, Government spending has double impact on residents’ consumption, The relationship between them is the u-shape curve. This shows that in different periods and regions government spending will bring different effects. This is because the output elasticity of the productive government spending is different.