Does Government Expenditure Help Stabilize the Real Estate Market?

This research delves into the causal relationship between government expenditure (GE) and housing price (HP) in China, aiming to validate the dynamic equilibrium model. Given the potential for structural shifts, an analysis of the long-term nexus using the full-sample data casts doubt on the reliability of conventional causality tests. To address this, a time-varying rolling-window methodology is utilized to reassess the dynamic causal interplay between the two variables. The findings subsequently underscore a mutual causal association between HP and GE, indicating that changes in one variable can influence and be influenced by changes in the other. Specifically, HP fluctuations positively and negatively impact GE throughout various sub-periods. Conversely, GE has a beneficial influence on HP, aligning with the dynamic equilibrium model. To maintain a relatively consistent HP level, particularly during structural economic transformations, it is crucial to reinforce preventive controls associated with GE and ensure a rational and stable flow of GE into the real estate market. This strategy contributes to obtaining a more accurate understanding of the real estate market’s condition and development, thereby providing a basis for governmental policy-making and adjustments to preserve market stability and promote healthy growth.