Income Distribution, Consumption Demand And Economic Growth: The Perspective Of Dynamic Coupling

Since the introduction of reform and opening, China’s economy has maintained a momentum of rapid growth, but at the same time, levels of income inequality are running at record levels. How to explain the coexistence of superior economic growth and widening income inequality? There are many theoretical and empirical researches about the positive correlation between economic growth and income inequality, but most studies were from a single point of view, such as urban-rural income distribution, regional income distribution, income distribution in different industries, it is difficult to explain the relationship between income distribution and economic growth. On the other hand, they often failed to pay full attention to a country or region’s own characteristics(including the level of economic development and stages of economic development, etc.) so that the conclusion didn’t reflect a country or region’s actual situation. In view of this, based on the previous research, this paper analyzes the impact of inequality on economic growth from theoretical and empirical points of view, and accordingly proposed recommendations to regulate income distribution and promote sustained and rapid economic growth.In order to grasp the main features of the current situation of China’s income distribution, and accordingly to build a framework to analyze the impact of income distribution on economic growth in line with China’s own economic growth characteristics, this paper used standard deviation, coefficient of variation, Gini coefficient and Theil index to capture the income inequality and trends in China. It showed that there are four typical characteristics of China’s income distribution gap: Firstly, the absolute difference in the distribution of income, including the regional income distribution, the urban internal income distribution, the rural internal income distribution, the state-owned units income distribution, the urban collective units income distribution and other units income distribution shows a continued widening; Secondly, the relative difference in the distribution of income, including the regional income distribution, the state-owned units income distribution and the urban collective units income distribution shows a narrowed trend following a expansion; Thirdly, the relative difference in income distribution, including the urban internal income distribution, the rural internal income distribution is small and remains a relatively stable trend; Fourthly, the income gap between urban and rural areas and the income gap in different industries generally shows a gradual expansion trend. Relatively, the income distribution gap between urban and rural areas is the prominent problem of China’s income distribution system. Therefore, only use the income distribution system composed by regional income distribution, urban-rural income distribution, inter-industry inequality income distribution and income distribution in different ownership units, can fully analyze the specific impact of income distribution on economic growth.Although exports have a positive impact on economic growth in China, the growth mainly depends on the increase of domestic demand which is also of the goal of the government. This paper selected consumer demand as mediator variables to analyze the effect of income distribution inequality on economic growth, combined with the significant impact of income distribution on consumption structure, proposed the analysis framework to analyze the relationship between income distribution, consumer demand and economic growth based on system theory and coupling theory: the income distribution system coupled with consumer demand systems- consumer demand structure- Industry Structure- economic growth. The analysis framework including urban-rural income distribution, inter-industry inequality income distribution and so on, analyzed and measured the degree of coupling between consumer demand based on System theory and physics coupling theory, it will fully capture the effect of income distribution gap on economic growth, and determine the key factors based on the coupling of the income distribution system and consumer demand system, and then can determine the focus of regulation of income distribution and expanding domestic demand, which can help to give targeted policy recommendations.This paper further empirically tested the relationship of the income distribution and consumer demand and economic growth based on system and coupling theory, the measures of the coupling of the income distribution- consumer demand system in China and three regions of the country between 1997-2010 show that, there is a high degree of matching between the income distribution and consumer demand. With this degree of matching, the income distribution promotes consumer demand structure in the short term, thereby effectively upgrades industrial structure, which contributing to the sustained and rapid economic growth. The degree of coupling between income distribution and consumer demand has a close relationship to the relative size of the income gap. When the income gap narrows relatively, the degree of coupling between income distribution and consumer demand is relatively high. When the income gap continues to widen, the degree of coupling between income distribution and consumer demand is relatively low. The urban-rural income gap is relative prominent, making the correlation of urban-rural income distribution and consumer demand lower than the correlation of regional income distribution and consumer demand, the associated correlation ownership income distribution and consumer demand, industry income distribution and consumer demand degrees. With growth in consumer demand as the dependent variable, total coupling of income distribution and consumer demand as explanatory variable, regression analysis shows that the coupling of total income distribution and consumer demand has a significant positive effect on consumer demand growth. This confirms the extent of match between the distribution of income and consumer demand promotes China’s consumer demand, contributing to the sustained and rapid economic growth in China.Finally, based on theoretical analysis and empirical results of this paper, we propose policy recommendations as follows: Firstly, we should continue to deepen the reforms of the income distribution system, making efforts to raise the income of low-income groups, and further reducing the income inequality, which is an important way to increase the degree of coupling between income distribution and consumer demand, and then to promote the upgrading of consumption structure and the growth of sustained economic. Secondly, we should focus on narrowing the income gap between urban and rural in the income distribution system reform, raising rural incomes through transfer payments and other measures to curb the rapid growth of the income gap between urban and rural areas. Thirdly, we should enhance residents’ consumption ability by improving their income level. Taking measures like leading residents to update the consumption idea, strengthening the development of consumer credit, improving the consumption environment and developing the rural consumption market could expand consumer demand. Although there is a high matching degree between income distribution and consumption demand in China, how to stimulate the residents’ consumption is still very important to the consumption demand growth and economic growth. Only then can we effectively raise the matching degree of income distribution and consumption demand, so as to effectively promote upgrading of consumer demand, and to promote a sustained and rapid growth of our country.