Abstract:
This paper introduces government productive expenditure and government welfare expenditure in a model of structure transformation. We assume that government finances its expenditures by levying taxation, and we explore the impact of government productive expenditure on structure transformation. We find that there exists an inverted-U relationship between government productive expenditure and structural transformation. It indicates that there exists an optimal government productive expenditure, which could maximize structural transformation. In addition, we explore the effect of government productive expenditure on structure transformation with China’s provincial data through empirical analysis. It is found that government productive expenditure has positive effect on structure transformation, and it is mainly through infrastructure expenditure, whereas the welfare expenditure has negative effect on structural transformation. Through regional analysis, we find that productive expenditure has no significant effect on structural transformation in the coastal region. The effects of sub-expenditure are quite different. In the coastal region, science & technology expenditure has positive effect, while infrastructure expenditure has no significant effect; both education expenditure and agriculture expenditure have negative effect. Productive expenditure has positive effect on structural transformation in the inner region. For the effect of sub-expenditure, both infrastructure expenditure and education expenditure have positive effect, while science & technology expenditure and agriculture expenditure have no significant effect.
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