Abstract: In the context of accelerating the consumption structure of Chinese residents and increasing the tendency of fiscal expenditure on people's livelihood, the effect of fiscal expenditure on residents' service consumption and the influence mechanism are of great concern. Based on the empirical study of China's provincial panel data simultaneous equations model and the three-stage least squares estimation (3SLS) in 2007-2015, it is found that the expenditure of the people's livelihood has a significant effect on the service consumption of the residents. Resident's disposable income is an important intermediary variable through which financial expenditure on people's livelihood affects residents' service consumption, but the size of the intermediary effect shows a little difference between the urban and rural residents to a certain degree. For urban residents, 50.7% of the crowding in effect is generated through the disposable income of residents, and for rural residents, the contribution of resident's disposable income to the crowding in effect is up to 70.8%. Therefore, it is an effective way to promote the growth of service consumption of urban and rural residents and to narrow the service consumption gap between urban and rural residents by increasing the expenditure of the people's livelihood in rural areas.

Key words: financial expenditure on people's livelihood, resident's disposable income, service consumption, 3SLS