Public Expenditures on Social Programs and Household Consumption in China

IMF Working Papers, March 1, 2010

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Canonical URL: Public Expenditures on Social Programs and Household Consumption in China

Authors: Emanuele Baldacci, Ding Ding, David Coady, Giovanni Callegari, Pietro Tommasino, Jaejoon Woo, Manmohan S. Kumar
Published: March 1, 2010
Series: IMF Working Papers
DOI: https://doi.org/10.5089/9781451982138.001

Increasing government social expenditures can make a substantive contribution to increasing household consumption in China.
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.
The paper combines:
- An empirical study of the relationship between the savings rate and social expenditures for a panel of OECD countries, used to provide illustrative estimates of implications for China.
- A generational accounting framework applied to Chinese household income survey data.

Empirical panel analysis:
- Examines the relationship between the savings rate and social expenditures for a panel of OECD countries.
- Uses those empirical relationships to generate illustrative estimates for China.
Generational accounting:
- Applies a generational accounting framework to Chinese household income survey data to assess the impact of public expenditure changes on household consumption.

Reallocating or increasing public expenditures toward social programs (education, health, pensions) can raise household consumption ratios.
A policy increase of social spending equivalent to 1 percent of GDP, evenly split across education, health, and pensions, is estimated to have a lasting positive effect on household consumption as measured by the household consumption ratio.

1. Household Saving Panel Regression, 1990–2008
- 1. Household Saving Panel Regression, 1990–2008 (Markdown version)
- 1. Household Saving Panel Regression, 1990–2008 (PDF)