Income Inequality,Liquidity Constraints And Urban Household Consumption

For many years,the pattern of economic development in China can be called “high saving” or“high accumulation”,which is sacrificing the consumption and living standards of residents to achieve the rapid growth in capital accumulation and economic.The residents’ final consumption rate in China is very low,and it had been declining for the past fifteen years,from 78.9% in 2000 to46.3% in 2010,and increased slightly to 49.6% in 2014.However,with the change of global economic situation,the domestic economy has developed into a new step,investment and export cannot lead China’s economy anymore.Now the central and local governments as well as scholars have known clearly about the important role of domestic consumption to the development of macro-economy.Raising consumption rate could increase the internal motivation of macro-economy,and is good for the transformation of economic growth pattern.Domestic and aboard scholars has done plentiful research on the causes of the low consumption rate in China.In this thesis,I found out that the residents’ consumption in China is not only less in amount but also imbalance in structure,and the reason can be ascribe to the income gap.As the income gap becoming larger,the contrast of consumption between rich people and the poor ones become distinct,this could lead to the jealousy and status seeking,people want to improve their social status by increasing their competitive consumptions.People’s pursuit to the luxury houses and cars recent years is a good evidence.Thus,in this thesis,I considered more about the status seeking motive in consume process,I believe that with the aggravation of income inequality,the families with higher income would formate the “demonstration effect” to other families,and these families would willing to pursue the higher consumption level,especially some visual and comparable consumptions to show their social status.In fact,this phenomenon has been verified in the United State and other developed countries,the widen income gap in American since the 80’s has caused the excessive consumption of the whole society.However,the result in China is different.Because of the less developed social security system and financial system,residents are restricted strongly by the liquidity restriction,people unable to borrow money and could only compress some daily consumption to achieve thecompetitive consumption.So,this whole process would lead to the overall decline and structural inbalance of consumption.This thesis analyzes the characteristics of current household consumption in China,imports the status seeking theory into consumption model and discusses the relationship between consumption and status seeking in the background of income gap and credit restriction.First,I put forward the issue of the thesis----the household consumption in China.Then I introduced the background and atmosphere of household consumption,including the dependence of residents’ consumption and the liquidity restriction.Then I took a comprehensive review of the correlated literatures,I found out that there have been plenty of literatures that discussed the influence of income inequaility to household consumption,but they didn’t consider about stauts seeking motive and the reality of liquidity restriction in China.Therefore,I imported the status seeking motivation and liquidity restriction into the utility function and deduce the theoretical framework of intertemporal utility of household consumption.Because of income inequality and liquidity constrains,consumers are over-sensitive to their current income,they would suppress their current non-status consumption to accumulate their status consumption.In the empirical research,I established an inter-temporal consumption model and analyze the influence of income inequality on household consumption,as well as the role of liquidity restriction in this process.I verified the two-way influence of income inequality to the household consumption:the negative effects to the non-competitive consumption and the positive effects to the competitive consumption.In addition,this chapter tests the “demonstration effect” and the effect of liquidity restriction as well.In the end,I put forward a series of suggestions according to the research result of this thesis and the current social and economic conditions in China.