Spending in social services in China: A multi-country analysis

In this paper, we simulate the effects of an increase in the levels of public spending in health care and social assistance in the Chinese economy, and examine its global effects, i.e., the effects on the main macroeconomic variables of seven regions of the world economy, namely, China, Japan, United States, European Union, Latin America, Asia‐Pacific and Rest of the World. Three different rules to finance the increase in public expenditure are considered. The empirical methodology makes use of a computable general equilibrium model, through an extension of the Global Trade Analysis Project model. The policy measure simulated led to either expansionary or contractionary effects on China’s activity levels, depending on whether the government deficit is left to increase, or if taxes are raised instead in order to offset it. While no sector seemed to be particularly hurt by this measure, trade flows were negatively affected, but this did not seem to have a strong influence on the rest of the world.