Journal de l'économie mondiale

The Effect of Government Expenditure on Private Consumption: Evidence from China

Abstract

Yang Chen, Fushu Luan and Weihong Huang

This paper employs the panel unit root tests and dynamic OLS (DOLS) estimator based on 29 provinces of China between 1996 and 2013 to estimate the relationship between government spending and private consumption with/without disposable income. It is shown that i) an increase in the aggregate level of government spending has a positive effect on private consumption; ii) a rise in the spending on economic construction and administrative management has a negative impact on private consumption while the spending on culture and education crowds in private consumption.