Public Expenditures on Social Programs and Household Consumption in China;by Emanuele Baldacci, Giovanni Callegari, David Coady, Ding Ding, Manmohan Kumar, Pietro Tommasino, and Jaejoon Woo;IMF Working Paper 10/69;March 1, 2010

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper shows that increasing government social expenditures can make a substantive contribution to increasing household consumption in China. The paper first undertakes an empirical study of the relationship between the savings rate and social expenditures for a panel of OECD countries and provides illustrative estimates of their implications for China. It then applies a generational accounting framework to Chinese household income survey data. This analysis suggests that 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 11⁄4 percentage points of GDP. JEL Classification Numbers: D12, E21, H31