The Effect of Market-Oriented Government Fiscal Expenditure on the Evolution of Industrial Structure: Evidence from Shenzhen, China

For looking at the effect of public fiscal expenditure of local government on industry, three contradictory points of view: improving effect, impeding effect, and no effect, have been previously discussed in the literature. However, there is no general agreement yet. As the most mature region of China’s socialist market economy with Chinese characteristics, the effect of Shenzhen’s market-oriented fiscal expenditure on the evolution of its industrial structure is worth investigating. This study applies Shenzhen’s fiscal expenditure data and industrial value-added data from 1980 to 2017 to a Bayesian Structure Time Series Model (BSTS). Empirical results show that in Shenzhen, market-oriented public fiscal expenditure presents a significant effect on the evolution of industrial structure. In addition, the promotion effect of different types of public fiscal expenditure on secondary industry is significant but largely subsides later. However, the promotion effect on tertiary industry is comparatively stable. This study suggests that Shenzhen government should apply different types of public fiscal expenditure at least five years in advance to promote the growth of secondary industry and apply fiscal expenditure to promote the tertiary industry when needed.