Abstract: Based the classical model of the middle voter demand function, this paper builds a dynamic spatial panel model of local fiscal expenditure decision, and empirically studies the impact of economic openness on the local fiscal expenditures. The empirical analyses show that: the local fiscal expenditure effects of openness are multidimensional and complex; economic openness leads to the expansion of local government expenditure scale; the investment openness increases the agriculture-aid expenditure and social welfare expenditure, and decrease the expenditure for administrative expenses and fiscal subsidies. The trade openness increases the expenditure for operating expenses of culture departments and expenditure for public security agency, prosecutorial agency, court and justice agency, and expenditure for capital construction, science and education, at same time, decreases the social welfare expenditure. Because openness rectifies and intensifies fiscal expenditure structure distorted simultaneously, China should create the institutional conditions to maximize the positive effects and minimize the negative effects, under the premise of adhering to openness policy.

Key words: economic openness, local fiscal expenditure, GMM