Public Expenditures on Social Programs and Household Consumption in China

Abstract

This paper shows that increasing government social expenditures can make a substantive contribution to increasing household consumption in China. The paper first undertakes an empirical study of the relationship between the savings rate and social expenditures for a panel of OECD countries and provides illustrative estimates of their implications for China. It then applies a generational accounting framework to Chinese household income survey data. This analysis suggests that a sustained 1 percent of GDP increase in public expenditures, distributed equally across education, health, and pensions, would result in a permanent increase the household consumption ratio of 1¼ percentage points of GDP.

Keywords: China, People's Republic of, Cross country analysis, Economic models, Education, Fiscal reforms, Government expenditures, Health care, Income distribution, Pensions, Private consumption, Private savings, Social safety nets