Empirical Research on the Non-Linear Inherent Relationship between China’s Social Security Expenditure and Private Consumption

Abstract

For the existing lack of empirical research of relationship between social security expenditure and private consumption, this paper verified the existence of nonlinear relationship between both in China from 1952 to 2009 by applying nonlinear STR model. The conclusions demonstrate that between both is obviously negative relationship, although it is similar to most of the existing conclusions, but different in manifestation, i.e. the negative relationship presents remarkable stage characteristics and is frequently converted between linear and nonlinear. This negative relationship can be specifically divided into three stages: 1. negative nonlinear relationship from the year 1958 to 1963; 2. insignificant relationship from the year 1964 to 1978; 3. the reconverted negative nonlinear relationship from the year 1979 to 2009.The maximum elasticity of social security expenditure in the second and third order lags on consumption level amount to -0.0898 and -0.1024 respectively, and the crowding out effect is higher. These conclusions provide a realistic theoretical basis for China to develop and implement policies of social security expenditure.