Effects of government expenditure on private consumption: Empirical evidence of China

The purpose of the study is to investigate the relationship between government expenditure and private consumption in China during 1978 to 2004. In this paper, effects of three categories of government on private consumption are examined within the cointegration and error-correction framework. The empirical results show that government investment expenditure and government transfer expenditure have positive effects on private consumption whereas government consumption expenditure has negative effects on private consumption.