Optimal Scale of the Rural Fiscal Expenditure Based on Economic Growth in China

Moderate government fiscal expenditure is able to effectively guide private investment, and redeem market limitation, consequently speed economic development. On the basis of existing literature review, this paper employs 'Barro rule' and Karras's theoretic framework, investigates the optimal scale of rural fiscal expenditure in China. The result of experimental analysis indicates, although the overall scale of rural fiscal expenditure in China is increasing, the relative scale is still insufficient. Using the sample data from 1980 to 2005, it sets up the C-D production function model. After the stationary test and cointegration test to time series variables, the ultimate regression model shows that the optimal scale of rural fiscal expenditure is 13.2% of rural GDP, which is much higher than current ratio. Therefore, the government should gradually strengthen the rural fiscal expenditure, consequently speed the rural area economic growth and realize the urban-rural balance development.