The "Thresholds" Research On The Financial Development Effecting Income Distribution In China

Since the reform and opening up, China’s economy has been grown rapidly. Thedevelopment of our economy sustains stable. GDP in1978was364.5billion Yuan, butin2012it increased to51.95trillion Yuan. However the fruits of economic growth arenot uniform behind the rapid economic growth, the fruit is not shared in the sameproportion by citizens. According to the National Bureau of Statistics in January20,2014, the released data showed that income Gini coefficient in China was0.473,which much higher than the international warning line of figures. Economic growthdoes not follow the path of development of Pareto improvement, which indicates thatthere is great room for improvement of China’s income distribution.Financial development is an important aspect affecting the distribution of income.The financial development influences the gap of income distribution mainly throughthree mechanisms. The three mechanisms are the welfare effects of financialdevelopment, the threshold effect and the non-equilibrium effects. The three effectsplay a role simultaneously. The final results of the financial development impactingthe distribution of income in the process depend on the three effects’ power parallel.At different stages of the economic characteristics and financial development levels,the magnitude of the three effects shifts. They cause the impact of financialdevelopment affecting income distribution showing a nonlinear relationship. Specificrelationship between financial development and income distribution is submitted adown "U" shaped track.In this paper, we use Hansen’s specific threshold regression model. Theempirical results show that there are threshold effecst between the two. The effecttends to be the piecewise function by the threshold level of financial development. Atcurrent stage, the relationship between income distribution gap and financialdevelopment appears an inverted U-shaped curve’s left part feature, and thefinancial development level has not yet reached the high threshold point. Therelationship between income distribution and financial development situates onU-shaped curve’s upstream section. The financial development will continue towiden the income distribution gap. Based on this analysis, the article puts forwardfinancial policy recommendations at different angles as follows: regulating the flowof credit and credit structure, encouraging pro-poor financial innovation, improvingthe financing of small and micro enterprises, building inclusive financial servicessystem and improving services and financial ecosystem for the poor discrimination.The policies are committed to narrowing the gap between income distributions.