Econometric analysis of the dynamic effect of fiscal expenditure shocks to the output

Abstract

In this paper, we establish the research framework to study the dynamic shock effect of two-levels financial expenditure on output, by using 1979–2007 annual macroeconomic data and SVAR model, in order to analyze the effect of two-levels financial expenditure on output, and introduce private investment and consumption to the model to study the pathway which the fiscal expenditure variables effect output. The results show that the two impact response function of output have differences from each other, the reason is that the central and local financial expenditure have different focus areas which they invest in, so it is necessary to make sure the responsibility of all levels of government, in order to make the financial expenditure more effectual.