Based on the China’s time series data from 1978 to 2008, this paper uses the time-varying parameter model to analyze the effect of government expenditures on dual economic structure transformation. The result shows that in three decades of reform and opening up, the government total expenditures on the urban-rural dual economic structure transformation shows U-shaped curve and that in terms of specific expenditures, in different periods, the government classified expenditure has the different effects on the dual economic structure transformation. In recent years, governmental administrative expenditure and livelihood expenditure have positive effect on the dual economic transformation, but the effect is falling, however, capital expenditure on infrastructure has negative impact on the dual economic transformation. Governmental expenditure structure should be adjusted by institutional innovation to promote dual economic structure to be transformed in positive direction.