Dynamic Economic Analysis of the Government Role in the Industrialization Process

Government played a pivotal role in the process of industrialization after the foundation of People's Republic of China.Based on the historical process of the industrialization,this paper construct of dynamic economic model,in which government taxes the labor intensified industry and subsidies the capital intensified industry in order to intervene the structure change of the industry to boost the industrialization.In numerical simulation,we find that the relationships between tax rate and output in different sectors,capital in different sectors,total capital and total output in steady state are better described as inverse U-shape.In addition,we also find that the relationship between tax rate and government tax income in steady state can also be described as the inverse U-shape.Government's excess subsidy of the capital intensified industry would have adverse impact on the development of labor intensified industry,economic growth and government tax income.It also even would be harmful to the sustainable development of the capital intensified industry.The theoretical model partly explains the reason why the priority development of heavy industry was not able to sustain in Chinese history,and also partly explains the intrinsic mechanism of government's adjusting the current economic structure.