Research on Optimal Structure of China's Fiscal Expenditures

Abstract

In this paper, we use the framework of the optimal tax structure discussed in endogenous growth models to analyze the optimal structure of fiscal expenditures of economic growth. Firstly, this paper establishes a simple economic growth and the fiscal expenditure structure optimization theory model. The model showed that when economic growth is maximized, the optimum proportion of various financial expenditures equal to the ratio of output flexibility of one financial expenditure to the sum of the output flexibility of all financial expenditure. And then, we carried on a empirical analysis of the relationship between the economic growth of China's reform and the structure of fiscal expenditure. Through the use of the empirical data analysis of the country's financial expenditure between 1986 to 2005. We concluded that in the structure of fiscal expenditure, administrative expenses are negatively correlated with economic growth. There is a positive correlation between the spending of social cultural and defense and economic growth. China needs to further optimize the structure of fiscal expenditure.