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Macroeconomic effects of government spending in China
Author(s) -
Wang Xin,
Wen Yi
Publication year - 2019
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/1468-0106.12242
Subject(s) - economics , government spending , china , macroeconomics , government (linguistics) , government expenditure , monetary economics , keynesian economics , public finance , market economy , welfare , political science , law , linguistics , philosophy
Government spending plays an important role in determining economic performances in China. Its macroeconomic effects are analysed in this paper. We show that government spending in China Granger‐causes output, consumption and investment booms as well as inflation, and has a multiplier larger than 1. The large multiplier effects are found not only in aggregated time‐series data but also in panel data at the provincial level. We also provide a theoretical model and Monte Carlo analysis to rationalize our empirical findings. Our theoretical and Monte Carlo analyses support the large multiplier found in China but also suggest that government spending is not necessarily a free lunch in spite of the large multiplier effects.