Transfer Payments and Response of Government Expenditure——The Empirical Test of Panel Data from Chinese Cities

This paper analyzes the effect of transfer payments to the government expenditure in a simple model.The em-pirical results show: general transfer payments have significant substitution effect to the government expenditure,while comple-mentary effect caused by special transfer payments.This article suggests that the higher levels government should increase the amount of transfer payment in the short-run,and give more taxing power to the local government to match the expenditure responsibilities in the long-run.