Crowding-out Effect of Chinese Government Expenditure on Consumer Expenditure: An Empirical Study in China from 1978 to 2009

Since dramatic increase in government expenditure was not as effective as expected in recent years, we have to consider the crowding-out effect of government expenditure. This paper establishes a consumer intertemporal substitution model to analyze the relationship between Chinese government expenditure and consumer expenditure from 1978 to 2009. The results show that the government expenditure didn't crowd out consumer expenditure but has a crowd-in effect instead. Moreover, different parts in government expenditure have different effects on consumer expenditures. Finally, the paper presents some advices on enhancing the effect of government expenditure based on empirical results.