Abstract: The relationship between local governments’ expenditure and private investment has been the focus of attention of academia, but consistent conclusion has never been reached. In the background of adjusting structure and stabilizing growth, it has strong theoretical and practical significance to rethink the relationship of local governments’ expenditure and private investment. In this paper, local governments’ expenditure was considered as the main body and the central government investment was also taken into account. This paper analyzes the relationship between central and local government investment and private investment, and the short-term and long-term effect. The special stage of government investment for coping with the financial crisis was selected as the sample. Based on panel data set and by using VAR model, it is found that the increase in local governments’ expenditure does produce a certain impact on private investment, but the effect is very weak and shows significant fluctuations and cyclical characteristics. Specifically, the crowding-in effect dominated the overall effect in the first four years, and reached its peak in the third year, and since then the crowding-out effect became dominant. The degree of two effects above was even. Finally, corresponding policy implications are recommended.
Keywords: Local Governments’ Expenditure, Crowding-in Effect, Crowding-out Effect, VAR Model
source:Finance & Trade Economics ,No1,2014