The analysis of influence factors of GDP in United States

Government expenditures have a close relationship with the gross domestic product (GDP). Understanding the contribution of different expenditures to GDP and improving the efficiency of the fiscal policy is really important for a country's development. The Rahn Curve theory, Rahn, R. and Fox, H. (1996), suggests that there is a level of government spending that can maximize the economic growth. Insufficient spending or over spending will hold back the economy. The main purpose of this report is through analysis of the impact of government spending during the financial crisis to determine how and why different spending levels affect the economy. The data we analyzed include the GSP (Gross state product) and the composition of the expenditures in each state in United States, for the year 2009. We use multiple linear regression to build our model and use stepwise method to select the variables to include. The result shows that pension, education and transportation have a significant positive effect on GSP. This indicates that the expenditure of pension, education and transportation play the important role in the US economy, especially in the recession period. Consequently, instead of increasing the welfare spending, which may reduce people’s motivation to work and hardly stimulates the economy, this paper recommends more allocation of expenditures to the services which can stimulate the economy and create more job opportunities, such as pension, education and transportation. In particular, depending on the survey Diana G. Carew and Dr. Michael Mandel reference have conducted, transportation, which is invested in less than its actual importance and contribution to the economy in the last decade, should get more attentions form the policy makers.