The Regional Different Effect of Government Spending on Private Consumption: Panel Cointegration Analysis from China

In this paper, we use addilog utility function to build a microeconomic basement for private consumption. To study the different effect of government spending on private consumption in different areas in China. Using the method of panel cointegration, we analyse the data from 1985 to 2004 of 29 province in China ,and found that on the level of China´s economy as a whole, private consumption continued to promoted by government expenditure. However, in different regions, the effects of government expenditure on private consumption is different. Generally, there are a negative correlation between the promoting effect of government spending and the level of economic development in different regions. The results would help the government to formulate more effective fiscal policies, which can expand domestic demand and reduce regional disparities.