Government Expenditures, Transfer Payments and Economic Growth

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Lai Yue 1,* Cheng Tianzhu 1

1. Financial and Economic Department, Guangxi University of Technology, Liuzhou, Guangxi 545006, P.R.China

* Corresponding author.


Received: 28 Apr. 2012 / Revised: 14 Jun. 2012 / Accepted: 20 Jul. 2012 / Published: 29 Aug. 2012

Index Terms

Government expenditures, transfer payments, fiscal decentralization, economic growth


Incorporating a two-level government structure into an endogenous growth model, we distinguished between productive and non-productive government expenditures. With transfer payments considered, we showed that (1) there was an “Inverted U-shaped” relationship between the tax rate and the long-run economic growth, so was the relationship between the degree of fiscal decentralization and the long-run economic growth; (2) optimal ratios between productive and non-productive expenditures of two levels of governments, between transfer payments and other parts of expenditures of the state-level governments are needed to maximize the long-run economic growth.

Cite This Paper

Lai Yue,Cheng Tianzhu,"Government Expenditures, Transfer Payments and Economic Growth", IJEM, vol.2, no.4, pp.93-100, 2012. DOI: 10.5815/ijem.2012.04.12


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