Fiscal Policy And Structural Transformation

This article incorporates fiscal policy into a multisectoral analysis framework.Through theoretical derivation,a method was proposed to estimate the impact of fiscal policy on economic restructuring.And in the empirical part,data from 1952-2015 in 31 provinces in China are used for parameter estimation.First,on the basis of Comin,Danial,and Lashkari(2015),the fiscal policy was introduced into a multi-sectoral analysis framework.Without considering cap-ital deepening,a log-linear equation characterizes how structural transformation is affected by the following factors:(1)Consumer preferences;(2)Total consump-tion;(3)Fiscal expenditure rates;(4)The fiscal output elasticity;(5)Technology across sectors;(6)Time.The theory that the structural transformation of Comin,Danial,and Lashkari(2015)is influenced by both the income effect and the price effect is extended to the theory that the structural transformation is influenced by income effect,price effect,technological progress,and fiscal policy at the same time.We focus on the impact of fiscal policy on structural transformation and find that when the elasticity of substitution is ?<1,when fiscal policy becomes positive,it will prompt the workforce to shift from a sector with high elasticity of fiscal output to a sector with low elasticity of fiscal output.Fiscal policy becomes negative,which will prompt the workforce to shift from a sector with low elasticity of fiscal output to a sector with high fiscal output elasticity;when the elasticity of substitution is ?>1,the situation is reversed;if the elasticity of substitution is ? = 1 or The fiscal output of the two sectors is the same,so the fiscal policy will not affect the structural transformation.This article also finds that the prices of commodities in various sectors are affected by the following factors:(1)the capital intensity of each sector;(2)the technology of each sector;(3)the ratio of wage and return on capital;(4)the rate of fiscal expenditure;(5)The elasticity of financial output of various departments.In the empirical part,we estimate the share of China's agricultural,industrial and service industries from 1952 to 2015.The results show that when the fiscal expenditure rate or tax rate increases,the labor force will flow from the non-industrial sector to the industrial sector.When the fiscal expenditure rate or tax rate decreases,the labor force will flow from the industrial sector to the non-industrial sector.In addition,over time,the labor force will shift from a sector with faster technological growth to a sector with slower growth.With the increase in total consumption,the labor force will shift from a sector with a low income elasticity to a sector with a high elastic demand for income.Next,we use the VECM model to verify the long-term equilibrium relationship between fiscal policy and structural transformation through co-integration analysis.There are also some other conclusions.We show that when the parameters meet certain conditions,there is an asymptotic steady state in the dispersed econ-omy in the model.In this case,the department with the smallest parameter for a particular expression will remain,and the remaining departments will disappear.In the process of aggregated economy,we found that the total labor income and total capital income in the total economy still retains the form of a single sector.And we have derived the production function of the general economy.When we do not distinguish between the industry's own capital and the public goods provided by the government,the economic summation process of this model is the same as Ngai&Pissarides(2007).If we do not consider the input of the labor force,the general economic degradation will be the case of Barro(1990).And we have proved that when we do not consider capital deepening,when the congestion is equal to the tax rate or fiscal expenditure rate,the aggregated economy returns the same rate of return on capital as a decentralized economy.This conclusion is the same as which was described by Barro(1992).