Research On Income Disparity From The Perspective Of Financial Economic Cycle

Since the 1980 s,the increasing income inequality and expanding financial cycle have become worldwide phenomena.On one hand,affected by the economic globalization,development of information technology and financial liberalization,all major economies' income inequality has increased significantly,and dissatisfaction about this situation by the low-income groups has accumulated to an extent among these countries.On the other hand,the increasing development of financial liberalization has promoted the continuous rise of the debt level and financial leverage ratio among major economies,and triggered the 2008 global financial crisis.The impact of the financial business cycle has also penetrated into all aspects of the society.It can be said that income inequality and the financial business cycle have become two important issues that have attracted wide attention globally.However,although the financial business cycle and the increase of income inequality have a consistent trend,the influence between each other and dynamics affected by other variables have not been fully discussed by the economists and industry.Therefore,it's meaningful,especially for developing countries such as China,to study the issue of income inequality from the perspective of the financial business cycle.We could better understand the effect and mechanism between the expansion of the financial sector and financial leverage and residents' income distribution,and then make the financial sector to play a more important role in promoting economic growth and improving income distribution.Against this background,this paper comprehensively sorts out the typical characteristics and research theories about the financial business cycle and income distribution.Then it constructs a theoretical equilibrium model,and discusses the influence mechanism,channels and shock response between the two factors.On the basis of theoretical analysis,this paper uses empirical data to carry out a comparison among G20 countries,and then further clarifies the relationship between the financial business cycle and income inequality.Firstly,this paper systematically summarizes the research and development of financial business cycle theory,the field of income inequality and the interaction mechanism between the two.It reviews and summarizes related theories and literatures,constructing a theoretical foundation for subsequent research.Secondly,this paper analyzes the development and features of major economies and China's financial business cyclical fluctuations and income inequality.It points out some stylized facts of the financial sector: 1)Financial sector is expanding and the total financial asset is growing rapidly;2)Financial globalization and the international capital flows continue to expand;and 3)Global financial development is imbalanced,and the regional differences are still large.This paper further clarifies the definitions of the financial business cycle and income inequality.It examines the development and stylized facts of the financial business cycle and income inequality both globally and in China.It analyzes the evolution and trends of the financial cycles of major economies,such as China,USA,Japan and Europe.By comparing the typical facts of the financial business cycle and income inequality,this paper shows the consistent trend between income inequality and the financial cycles which is implied by private debt ratios or financial leverage.Then it further explores the mechanism between financial business cycle and income inequality through the heterogeneity of different income groups.Based on the analysis of typical facts,this paper draws on relevant research results to construct a dynamic stochastic general equilibrium model(DSGE)with financial intermediary departments and credit constraint,and then adopts Bayesian method to estimate the parameters.It uses impulse response and variance decomposition methods to study the impact of exogenous shocks such as technological shocks,credit constraint shocks,and default shocks on output,investment,consumption,and income inequality.The model focuses on the evolution and income distribution of heterogeneous sectors such as saving households,borrowing households,entrepreneurs and financial intermediaries.The model has the following implications: 1)financial cyclic factors such as credit constraint,financial friction not only have an impact on traditional macroeconomic variables such as output,consumption and investment,but also obviously influence the income inequality among different sectors through their default to financial intermediary or relative variation in credit distribution.2)According to the results of impulse response analysis,the financial intermediary sector has a financial accelerator effect that can amplify exogenous shocks.The looser the credit constraint,the more the fluctuations of output and income inequality would be amplified.The model also shows that the balance sheet of financial intermediaries is the main channel through which financial shocks are transmitted to other sectors.Then macroeconomic variables including income distribution will be affected by financial shocks for a long time,and their convergence rate to the steady state will decrease.3)Allocation of financial resources is of great significance for improving the income inequality gap among different sectors.For low-income families,whether it is the resource transfer from financial sector or improvement in their access to the financial sector,their income distribution could be improved significantly.4)In the benchmark model simulated by current actual environment,technological shocks are still the core factor affecting output and income distribution,especially positive technological shocks can promote the growth of output,consumption as well as the income inequality.Therefore,the upgrading of the real economy is still of great significance.Through the econometric comparison of the G20 countries,this paper examines the relationship and influence mechanism between financial business cycle and income inequality from both sides.On the one hand,the financial cycle is significantly positively correlated with a country's income inequality.The rise of the financial cycle index significantly increases the inequality of income distribution.It specifically will significantly increase the highest income group's income share,and reduce the share of low and middle income groups,thereby exacerbating the inequality of income distribution.On the other hand,the increase in income inequality in a country will also significantly increase the leverage ratio of the private sector.At the same time,this mechanism has structural differences between advanced economies and emerging countries,and implies the threshold effect of economic development and income inequality.It implies that the higher the level of economic development,the stronger the effect of income inequality on the financial business cycle,and then its influence on credit leverage will tend to be smaller after the threshold.Finally,in view of the continuous increase in income inequality and the loose monetary conditions of various countries,and China's ongoing transition from a stage of rapid growth to that of high-quality development,this paper draws some policy advises based on the theoretical model and the empirical research: 1)Policy makers must pay attention to financial cycle fluctuations and continue to steadily promote deleveraging.China should take effective measures to prevent systemic financial risks,such as making financial sectors more responsible for the real economy and avoiding rapid increases in debt leverage.2)China should continue to improve income distribution to promote harmonious social development.The promotion in supply-side structural reforms will lead to innovative growth,and the proportion of labor and knowledge in the primary distribution should be expanded.The policies should be taken to improve the fiscal system,and curb the widening income inequality among regions,industries,urban and rural areas.And policy maker should focus on infrastructure construction,and cultivating long-term mechanisms to guarantee equal opportunities for residents.3)Financial inclusion could improve the relationship between the financial cycle and income distribution,and truly benefit the real economy and more people.We need to pay more attention to the distribution effect of the financial cycle,and promote the development of financial inclusion to improve the two-way transmission channel between the financial market and income distribution.The coordination of fiscal policies and monetary policies should be strengthened,so as to play a more important role in the redistribution system.