Abstract: Based on IS-LM model and Okun’s law, this paper tries to sort out the conduction path of the impact of fiscal expenditure on employment from the macroscopic level. Then it puts forward a research hypothesis, that is, there exists a threshold effect of fiscal expenditure on employment. Compared with the stage of faster economic development, when the economic development is slower, fiscal expenditure has stronger positive effects on employment. Evidences from China’s provincial panel data have verified the research hypothesis. It is also found that the improvement of consumption can play a significant role in promoting employment, while over-investment could play a reverse role in promoting employment. Thus, China should adjust the structure of financial expenditure, increase the expenditure on human capital accumulation, focus on relieving the structural contradictions in employment, so as to promote the positive interaction between economic growth and employment.

Key words: fiscal expenditure; employment; threshold effect; economic growth