Income Inequality,Gift-money Expenditure,Household Consumption

In recent years,the social climate of unhealthy competition in weddings and funerals are getting worse in many rural regions of China.Correspondingly,more invitations are received and gift money in growing quantity are given out.Gift-money expenditure shows the characteristic of “high frequency and big amount".The existing research with the relation between the gift-money expenditure and the rural households consumption mainly focus on the positive function of what the gifts spending reflects the social network.There are also some literatures holding that gift-money expense represents a family's social status,and thus get great attention in China's rural families.However,the four problems as follows are often ignored in the existing literatures with the relation between the gift-money expenditure and the rural households consumption: first,the family's consumption preferences may not be independent of each other,that is,it is characterized with externalities.Many literatures show that conspicuous consumption in wealthy families tends to have a demonstrated effect on the consumption of other families,as is a good example in the case of rural marriage ceremonies in larger and higher grade;second,the continuing expanding of income inequality will affect the family's decision by seeking wanted social status,i.e.,the change in income distribution means some families' income become relatively lower than others.In order to maintain their social status,these families will try to emulate more affluent families' behaviors in the weddings and funerals;third,the expansion of income gap may be a major reason for the high-proportional rural household spending;forth,the gift-money expenditure has double effects on rural households' consumption:promoting effect and crowding out effect.Considering the actual situation in China,this dissertation constructs a new theoretical framework.From the perspective of income gap and consumption externalities,it employs CFPS data and makes an in-depth theoretical and empirical analysis for the two problems above using several econometric models.The most distinctive parts can be described as follows:First,the research focuses on the status attributes of gift-money expenditure.According to the theory of status seeking,people are willing to transfer more resources to expenses that represent a family's social status,and thus take those very seriously.This eventually affects the final allocation of resources.The Ordered Logit Model about self-evaluation of households' social status is established to test whether the status symbolic for the households' subjective cognition is significantly identified between gift-money expenditure,as well as its closely related expense concerning weddings and funerals,and the rural households' consumption..The empirical results show that households spending are not a remarkable status symbol,while the expense of weddings and funerals and the households' consumption are statistically significant with the social status cognition.Hence,the following emphasis is put on the analysis of income inequality in rural households of China.Second,the study focuses on the reasons of highly-proportional rural gift-money spending,find that the expansion of the income gap may be a major reason among otherthings.This study attempts to explore the micro mechanism as to the income gap boosting the rapid growth of gift-money spending.In the process of empirical analysis,it redefines two effects,status seeking effect and conformity effect,which reflect the individual's independent consumption preference.It,then,employs a count model of negative binomial distribution to study the effect of the expense of weddings and funerals on the amount of gift-money,and the effect on the gift-money costs using Panel Tobit model.Although the two models have similarities in intuition,they are different in essence.Besides,it is measured that effects of income inequality on gift-money expenditure and the expense of marriages and funerals through status comparison.Third,the study goes on studying the effects of gift-money expenditure on households' consumption.The paper identifies the “money as giving” promotion on households' consumption in the regression model that introduces the cumulative distribution function value of the households' gift-money expenditure within the reference group,as income gap expends the growth of household spending which might bring with the double effects on households' consumption.There is the endogenous issue with gift-money expenditure in the reference group,which means households' expenditure might be endogenous in the consumption model as the expenditure and family consumption are interrelated.Thus,the reasonable instrumental variable,the level of marriages and funerals expenditures,is given to solve the endogenous problem in the consumption.The main empirical study conclusions of this paper are as follows: First,households' gift-money expenditure is not functioned as the role of social status,just reflecting the conformity effect,while the expenditure of weddings and funerals,which is closely relate with gift-money expenditure,represents the level of a household social status;Second,the cause of highly-proportional rural household expenditure is rooted in the widening of the income gap.The mechanism behind is that the income gap caused by households' for comparison in their weddings and funerals occasions.The rise of weddings and marriage market is not only a direct result of expenditure of rural households increased cost of weddings and funerals,but also a trigger of chain effect,the greater frequency,the more spending;Third,the income inequality has significantly positive effect on “money as giving” and on the expenditures of marriages and funerals;Fourth,the gift-money expenditure could promote the households' consumption,and also has crowding-out effect on it;Fifth,the gift-money expenditure has the strongest crowding-out effect on relatively low-income households,while there is little crowding-out effect on high-income households.The main possible contributions of this dissertation are as follows: First,the study shows that it is the income gap that is the deep source of the gift-money rising,which is firstly based on the dual perspectives of income inequality and non-independent preference;Second,it also presents a micro-mechanism,rising inequality results in household status comparison that lead to the greater frequency and paid of money as gifts,and that connects income inequality and households' gift-money expenditure;Third,for the sake of identifying dilemma of the classical mean model,since it is difficult to distinguish between status-seeking effect and conformity effect,this studypresents a new identifying method,which is used to identify that gift-money expenditure embodies conformity effect,and the wrong viewpoints of defining gift-money expenditure only as social status symbolic is corrected;Fourth,the cumulative distribution function is introduced in the consumption model to identify that gift-money spending might bring with the double effects on the rural households' consumption while the endogenous problem of “money as gift” in the reference group is solved.