The Estimation Of Chinese Government Expenditure Multiplier Based On DSGE Model

Active fiscal policy has played a key role in China’s macroeconomic policy practice over the past four decades.Government expenditure is the main tool for the implementation of a proactive fiscal policy.An important indicator for evaluating the effectiveness of fiscal policy is the government expenditure multiplier.Based on previous studies,this paper selects a dynamic stochastic general equilibrium model to estimate China’s government expenditure multiplier.This paper establishes SVAR with four short-term constraints,studies the effect of government expenditure on macroeconomic variables,and derives short-term government expenditure multipliers and long-term government expenditure multipliers.Government spending can stimulate increased output and reduced consumption,but this effect will gradually diminish over time.There will be a short-term positive impact on the impact of interest rates,and later interest rates will deviate from steady-state levels.This shows that the SVAR model is too data-dependent and lacks the support of a structural economic model to fully explain the relationship between economic variables.Therefore it is not an optimal model for estimating the government expenditure multiplier.Therefore,this paper mainly studies the government expenditure multiplier by constructing the DSGE model.First,the short-term government expenditure multiplier and the long-term government expenditure multiplier are studied in the benchmark DSGE model under total tax.In consideration of government tax financing,labor is introduced under the benchmark model.The effective income tax rate and the effective capital tax rate are used to calculate the short-term and long-term government expenditure multipliers.Taking into account debt financing,the sensitivity coefficient of the effective tax rate introduced under non-total tax on government debt is calculated to calculate the short-term and long-term government expenditure multipliers.By comparing SVAR with the three DSGE models,we find that government expenditure has a positive stimulus effect on the economy in the short term.Over time,this positive stimulus effect gradually weakens,and even a negative stimulus effect appears.Government expenditure has a negative stimulus effect on the output of residential consumption,but in the SVAR model,the negative effect on residential consumption will weaken over time,and a positive stimulus effect will appear.For nominal interest rates,government spending has a positive stimulus effect.When comparing the three DSGE models,it will be found that under the total tax,the government expenditure multiplier after taking into account the effective tax rate will be greater than the government expenditure multiplier under the benchmark model.In the case of debt financing,the government short-term expenditure multiplier will be reduced.small.The government’s expenditure multiplier is greater than the tax multiplier in both the short and long term,which shows that fiscal expenditure is the main tool for China to regulate economic fluctuations.