An Empirical Research On The Relationship Between Income And Consumption Of Hunan Residents

Consumption is not only the process of reproduction but also the starting point of the next reproduction, it stands at a key position and plays a leading role in the economic cycle, it is the fundamental driving force of the economic growth. Since the establishment of Keynesian Absolute income hypothesis of consumption, economists form different emphasis and angles study the consumption issues, and create a number of theories, and provide theoretical guidance for practical work. Lack of effective demand is an important factor that hinders the development of national economy, and directly impact the implementation of the national strategic objectives. Therefore, establishing a empirical research on the relationship between income and consumption of residents and exploring an effective way to stimulate consumer behavior and improve the consumption rate are of great theoretical and practical significance for government to open up the consumer market, develop consumption policy, promote a sustained, healthy and stable national economic, and ensure a safe operation of macroeconomic.This paper is based on the Consumption Function at home and abroad, using econometric methods to empirically analyze the relationship between consumption and income of urban residents in Hunan Province and the impact of the income gap between urban and rural residents on household consumption.The first empirical is based on data of year1978-2012in Hunan, using Co-integration Test and ECM to study the relationship between disposable income and average annual consumption of urban households in Hunan. The results show that: there exist a short-term trend and a long-term equilibrium co-integration relationship between disposable income and consumption, income has a significant impact on consumption.The second empirical is based on data of year1980-2012in Hunan, using VAR to study the impact the income gap do on consumption. The results show that: the income gap has a significant and long-term impact on consumption, there is a significant negative correlation between them, that is to say the expansion of the income gap is an important reason for sluggish growth in consumer demand.So to expand domestic demand and make consumption a endogenous motivation of economic growth, the focus is to enhance the consumption ability of both urban and rural residents and solve the shortage of consumer demand.In order to promote the growth of consumption, we should endeavor to promote residents’income growth and narrow the income gap. Finally, I propose a number of policy recommendations.