Empirical Analysis On Resident's Income Inequality And Consumption Inequality In China

W. Arthur Lewis, in 1954 published an article entitled"economic development under the conditions of infinite supply of labor". The article proposed the dual economic structure. Following Lewis, John C. H. Fei, G. Rain and others promoted the model of dual economy model. Since then scholars issued in economic development of developing countries have begun to introduce dual economy model. Make more specific theoretical research and empirical studies in depth, but not limited to the dual economy. A wide range of research began.The income gap is the large part of the dual economic structure study. With changes in the pattern of the world economy, developing countries have played a tremendous role in promoting the global economy. And these have attracted a growing number of foreign and Chinese scholars to study income gap. The Gini coefficient is internationally recognized as one of the indicators in reflecting income gap. Early in 1922, Italian economist Gini put forward Gini index. With researchers continuous studying, the Gini coefficient was not only coming from Lorenz curves. However, widely using Gini coefficient is doubted by many scholars so that its application had been limited. Therefore, we can only think about it with reservations. In 1967, Theil in his article"Economics and Information Theory"used the entropy concept of information theory to calculate income inequality. From then General Entropy was widely used in the issue of income inequality. There is a certain complementarity between Theil index and the Gini coefficient. The Gini coefficient is particularly sensitive to changes of the middle-income levels. Theil T index obviously reflects changes of the upper income levels, and Theil L and V index changes are sensitive to changes of the lower income levels.The biggest advantage of using Theil index to measure inequality is that it can measure the contributions of the gap among the groups and the contributions of the gap in the groups to the total gap. Shorrocks mentioned in 1982, if inequality can be designed to the sum of weighted sub-index, the index could decompose based on source of income, such as Gini coefficient, Theil index and so on. Furthermore, the Theil index is a special situation of General Entropy. When the general entropy parameters c=1, GE index is Theil index. Both when c=1 and when c=0, the two indices of inequality results basically the same. But when take c=0 to analyze, explaining the overall gap between the groups will be much more clear and simple to handle.Based on the above theory and research, this paper introduces the background of the study and research status. China is the largest developing country with prominent dual economic structure, and the gap between urban and rural areas is the most notable. So from the gap between urban and rural areas, internal gap in urban and rural areas, we introduced the status of foreign and Chinese scholars'studies. As the income gap will inevitably lead to the emergence of the unequal consumption. Therefore, we also briefly summarized the impact of the income gap on consumption demand.We have explained the theories that have a great impact on the problem of income inequality, such as: Inverted U hypothesis, Dual economic structure theory, Regional income gap. After that we consider the famous consumption function based on absolute income introduced by Keynes, and combine income and consumption. We have done a more detailed explanation about evaluation index of the gap, including the Gini coefficient, the Theil index and the Variation index. These will be used as a measure of income inequality and consumption inequality.As we mentioned that there is the remarkable dual economic structure in China, we also analyze internal gap of urban and rural and the gap between urban and rural areas in detail in recent years. Data shows that China's gaps among urban, rural areas and urban-rural are expanding. Make the analysis of the income and consumption trends in various income levels for urban and rural. We also point out contributions of different levels to the overall gap. There are many methods of analyzing income gap, and we from sources of income give a more comprehensive analysis on the problem of income inequality. Using the formula of GE index we have gained the GE index of internal urban, internal rural and between urban and rural areas since 1993. The GE indexes of internal urban and internal do not change significantly. The contribution of the GE index between urban and rural to the overall index is particularly prominent. Using the same formula and removing transferred income, we recalculated GE index. The results showed transferred income failed to improve the income inequality. Transferred income improved urban internal inequality a little. Moreover, the income inequality between urban and rural areas and in rural areas are not only failed to improve, but increased. This paper also calculate the contributions of every income sources, which can also see that labor income of contribution to the total has been dropping, and transferred income is increasing in the contribution rate. When analyzing the gap of consumption indicators as income gap, in that this will be comparable. We found that the fluctuations in consumption will be greater than the income, and consumption inequality are more sensitive to macroeconomic policies than income inequality. This research will broaden the thinking of studying consumption inequality and promoting economic growth.Finally, we use panel data regression and simple least-squares regression to analyze the quantitative relationship between income inequality and consumption inequality. We used the Gini Coefficient urban and rural Gini coefficient of the Chinese as attributive variable, and explanatory variable is the average propensity to consume of urban residents and rural residents. Because panel data is in greater detail, it is more valuable. Our results show that the relationship between the income of urban residents and consumer demand is more significant. However, the relationship between the income of rural residents and consumer demand did not achieve the desired results, and we carried out a further analysis. Then, still divided into two parts: urban and rural areas, we gave policy proposals about improving income inequality and expanding consumer demand.