Abstract: National fiscal revenue growth appears decrease in 2012. At the same time, the hope of residents on improve people′s livelihood and government attaches great importance to the people′s livelihood indicate that rigidity enhanced fiscal expenditure growth. How to resolve this contradiction become the top priority of the government work. We construct a CGE model of China to investigate the effect of government investment expansion and structure adjustment on macro-economy and resident welfare. The results indicate that expansionary government investment has positive effect on macro-economy in the short term. However, the effects are very bad in the long term. On the contrary, the investment structure adjustment has good effect on economy and resident welfare in the long term. Either government investment expansion or structure adjustment, the investment on agriculture, public management and social organization, education are the optimal investment sector. Followed by are manufacture of foods and tobacco, Health and Social Security. Real estate, scrap and waste are the worst investment sector. Therefore, the original structural imbalances will be more serious if we simply expand the level of public investment. How to scientific and rational adjust the scale of investment and optimize the structure is the key.