Can Public Consumption Lead to Resident Consumption

【Authors】

YAO Peng, WANG Yutong

【WorkUnit】

YAO Peng （Qufu Normal University, 276826）WANG Yutong （Chinese Academy of Fiscal Sciences, 100142）

【Abstract】

Consumption serves as a direct indicator of people’s pursuit of a better life, and “accelerating the cultivation of a comprehensive domestic demand system” remains a top priority for China’s economic development and will remain so in the foreseeable future. However, the current weak driving effect of household consumption on China’s economy, coupled with the dual challenges of “insufficient effective demand and inadequate effective supply” in residential consumption, has constrained the full realization of China’s domestic market potential, creating an urgent need to identify key mechanisms for stimulating consumption. Previous studies on household consumption mostly adopt a unidimensional approach, failing to account for the bidirectional interaction between demand-side and supply-side constraints. This paper investigates government procurement as a macroeconomic policy tool through its “public welfare” and “market-oriented” attributes, using panel data from prefecture-level cities （2015-2019）. We examine whether government procurement—via economic transactions—can stimulate household consumption, guide corporate innovation, bridge demand-supply gaps, and foster a robust domestic consumer market.
Empirical results demonstrate that government procurement significantly enhances household consumption levels. The conclusion remains robust after rigorous tests, including variable substitution, nonlinearity checks, and instrumental variable analyses. Mechanism analysis reveals that on the demand side, government procurement “crowds in” household disposable income and increases marginal consumption propensity; on the supply side, it incentivizes corporate innovation to improve product quality, meets diverse consumer needs, generates low-risk economic benefits for firms, and creates employment opportunities through spillover effects that raise wages, thereby boosting consumption. The heterogeneity analysis indicates that government procurement has a significant impact on the consumption level of residents in high-income regions and Eastern regions, as well as on the consumption level of rural residents in Western regions and low-income regions. Furthermore, procurement orders awarded to small and medium-sized enterprises  are more effective in enhancing residents' consumption levels. Procurement significantly impacts consumption in eastern regions where market mechanisms are mature and in rural western regions which depend highly on government support. Further analysis confirms that government procurement simultaneously meets public needs and aligns consumption demand with supply, achieving effective demand-supply integration. This study provides practical insights for stimulating consumption, unleashing domestic demand, and promoting sustainable economic growth.

【KeyWords】

Government Procurement, Residents’ Consumption, Willingness to Consume, Quality of Supply