China: Does Government Health and Education Spending Boost Consumption?
IMF Working Papers, January 1, 2010
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Bibliographic details
- Authors: Steven A Barnett, R. Brooks
- Published: January 1, 2010
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451962130.001
Summary and research question
- Consumption in China is described as unusually low and has continued to decline as a share of GDP over the past decade.
- The paper investigates whether the sizable increase in government social spending in recent years lowered precautionary saving and increased consumption.
- The study focuses on government spending on health and education and its impact on household behavior and aggregate consumption.
Main findings
- Spending on health, but not education, had an impact on household behavior.
- The impact of government health spending is reported as large:
- A one yuan increase in government health spending is associated with a two yuan increase in urban household consumption.
- Education spending showed no measurable effect on household consumption in the analysis presented.
Policy implications and interpretation
- Increasing government health spending can significantly reduce precautionary saving and boost urban household consumption, suggesting a channel for rebalancing growth away from reliance on exports and investment toward consumption.
- Education spending, according to the paper's findings, does not appear to have the same effect on household consumption and therefore may not serve the same short-term demand-stimulating role.