Research On The Impact Of Households Wealth Distribution On Household Consumption In China

Consumption is the most important driver of China’s economic growth and is likely to become even more significant.Therefore,it is crucial to clarify the main factors influencing consumption.Research on the factors influencing consumption has a long history and has yielded fruitful results.However,the research on the influence of distribution on consumption is still in development,lacking a classical theory.Furthermore,previous studies have mainly focused on the impact of income inequality on consumption,with limited research on the impact of wealth inequality.Wealth inequality represents a more stable,harder to change,and more severe form of inequality that accumulates over years.There must be differences between its effects on consumption and the effects of income inequality.Following the reform and opening up,the unbalanced and rapid development in China has resulted in high levels of inequality across regions,urban and rural areas,and other dimensions.In comparison to some developed countries in Europe and America,Chinese residents still maintain a strong savings habit,and the availability of consumer credit is lower.As a result,household wealth has a greater impact on household consumption.Therefore,studying the impact of wealth inequality on consumption in the current context of China holds great significance.This research can contribute to formulating more effective consumption promotion policies and ensuring the longterm stable development of China’s economy.To accomplish this,the AuerbachKotlikoff model is utilized,along with data from five rounds of the Chinese Household Finance Survey(2011-2019)and four rounds of the China Family Panel Studies(CFPS)(2012-2018).This paper employs comprehensive theoretical and empirical analyses to study the impact of wealth inequality on household consumption,its potential influencing mechanisms,and future trends.The thesis comprises seven chapters.Chapter 1 serves as the introduction,while Chapter 2 focuses on the literature review.Chapter 2 primarily examines previous studies on the impact of wealth inequality and income inequality on consumption,as well as studies pertaining to wealth inequality,consumption,and the A-K model.Chapter 3 presents the theoretical analysis.Firstly,a multi-period OLG(Overlapping Generations)local equilibrium model is established based on the A-K model.Then,through numerical simulation,the chapter investigates the relationship between wealth inequality and household consumption,along with the possible influencing mechanisms.Moving on to Chapter 4,an empirical examination of the influence of wealth inequality on household consumption is conducted.Furthermore,the chapter delves into the possible mechanisms and trends of this influence.Chapter 5 takes a closer look at the differences and similarities between financial wealth inequality and housing wealth inequality on household consumption from the perspective of household wealth structure.This analysis aims to provide a better understanding of the mechanisms through which wealth inequality affects household consumption.Additionally,the chapter discusses the future trend of wealth inequality’s impact on household consumption by speculating on reasonable changes in household wealth structure.In Chapter 6,a comparative analysis is performed to explore the distinctions and commonalities between income inequality and wealth inequality concerning their effects on household consumption.The chapter seeks to clarify the research significance of this paper and highlight the disparities and similarities between these two dimensions of inequality in their impact on consumption.Lastly,Chapter 7 concludes the thesis by summarizing the research findings,presenting relevant policy recommendations,and indicating directions for future research.The findings of this thesis can be summarized as follows:Firstly,both theoretical and empirical analyses indicate that wealth inequality significantly affects household consumption.However,in the theoretical analysis,the negative influence mechanism of wealth inequality on output has not been included in the model.As a result,the theoretical analyses demonstrate a positive correlation between wealth inequality and consumption.The influence mechanisms are as follows: when the total amount of wealth remains unchanged,an increase in wealth inequality leads to a decrease in the wealth of the poor.This stimulates them to increase labor supply,current income,lifecycle income,and credit ceiling to partially offset the consumption decline caused by the reduction in wealth.Conversely,for the rich,an increase in wealth leads to a decrease in labor supply,resulting in reduced income and consumption.However,due to the wealth effect,the consumption of the rich increases as a result of their increased wealth.Overall,the increase in wealth inequality tends to increase consumption among the rich.Additionally,the study reveals that as the disutility of work increases,the positive correlation between wealth inequality and consumption weakens.Therefore,it is speculated that as the economy becomes more developed,the positive impact of wealth inequality on consumption will diminish.The empirical study shows that:(1)Wealth inequality has an overall negative impact on household consumption.However,after controlling for household income and wealth,wealth inequality only exhibits a positive impact on household consumption.(2)Further analysis reveals that wealth inequality may affect household consumption through several channels.Firstly,it may restrain household income and wealth in the long run by influencing people’s education and health status,thus exerting a significant negative impact on household consumption.Second,wealth inequality may also impact houseold consumption through the mechanism of decreasing marginal propensity to comsume of wealth,affecting people’s comparative consumption motive,and influencing income inequality.Thirdly,wealth inequality may impact household consumption by influencing household indebtedness.(3)The impact of wealth inequality on consumption varies significantly across households with different characteristics.It has a greater positive impact or a smaller negative impact on the consumption of young and middle-aged households,wealthy households,first-tier city households and households with high asset-liability ratio.(4)Wealth inequality primarily affects consumption for enjoyment.Secondly,we find that compared with household housing wealth inequality,household financial wealth inequality has a greater negative impact on household consumption.In addition,both types of wealth inequality affect household consumption through the aforementioned channels.Furthermore,considering the expected continuation of the Policy of No-speculation on Housing and the sustainable economic development in China,it is anticipated that the proportion of financial wealth in household wealth will increase,along with the contribution of financial wealth inequality to overall wealth inequality.Therefore,considering the disparity in the influence of the two types of wealth inequality and the projected increase in the proportion of financial wealth,it is estimated that the negative impact of wealth inequality on household consumption will intensify.Finally,the impact of income inequality and wealth inequality on household consumption is strikingly similar,but the negative effect of wealth inequality on household consumption is more pronounced and enduring.Specifically,the similarities between the two are as follows: firstly,when viewed holistically,both income inequality and wealth inequality exhibit a significant negative correlation with consumption.However,when household income and wealth are controlled for in the analysis,this relationship transforms into a significant positive correlation.Moreover,when additional variables that significantly influence consumption are taken into account,the positive and significant relationship between the two persists.Secondly,the mechanisms through which both types of inequality affect household consumption are largely identical.These mechanisms include diminishing marginal propensity to consume,as well as their potential to influence household income,wealth,and comparative consumption motives.Nevertheless,there are certain differences between them.Firstly,wealth inequality exerts a greater negative impact on consumption,both overall and through various mechanisms.Secondly,only wealth inequality significantly affects household consumption by influencing household indebtedness.Thirdly,we observe that only wealth inequality has a significant and negative impact on development-driven consumption,thus demonstrating a longer-lasting effect.The innovations can be summarized in the following aspects:Firstly,in regard to the research topic,this study provides a valuable contribution to the existing research on this subject in China.There is no consensus conclusion regarding the impact of distribution on consumption,with the majority of previous studies focusing on the relationship between income inequality and consumption,while fewer studies have explored the impact of wealth inequality on consumption,particularly within the context of China.Consequently,this study not only advances the understanding of the influence of distribution on consumption,but also adds to the existing research on this topic in China.Secondly,concerning the research findings,this study underscores the impact of wealth inequality on household consumption by examining its effects on household income,household wealth,and household debt.These factors have received relatively less attention in previous studies,yet this paper considers them crucial channels of influence,particularly highlighting the influence of wealth inequality on household income and wealth.Thirdly,in terms of research methods,this study employs a variety of analytical approaches,including theoretical analysis,numerical simulation,and empirical analysis based on large-scale survey data.By employing these diverse methods,the research aims to provide a comprehensive understanding of the research question,thus addressing the issue from both theoretical and practical perspectives.Fourthly,regarding the data used,the empirical analysis draws upon two prominent survey databases,namely CHFS and CFPS.Both databases are widely recognized national household survey databases extensively utilized in empirical research.The representativeness and validity of the data have been thoroughly examined and validated by researchers.Therefore,conducting empirical analysis based on these two databases ensures the credibility and reliability of the findings.