Research On The Correlation Between Income Inequality And Consumption Inequality In China

Since the reform and opening up,China’s economy has developed rapidly,people’s living standards have improved significantly,and per capita income and per capita consumption levels have continued to rise.At the same time,the degree of marketization of China’s financial system and the degree of deepening of financial institutions have been continuously enhanced.Since 2011,digital inclusive finance has developed into an emerging financial format with the help of the Internet,improving the inclusiveness and serviceability of the financial system.From the perspective of distribution,in recent years,the income inequality and consumption inequality of Chinese urban residents have shown a fluctuating upward trend,and the distribution has become more and more unfair.However,the inequality of consumption distribution is smaller than the inequality of income distribution,and the gap between the two continues to expand over time.This expanding trend reflects a certain consumption smoothing mechanism.Different from previous literatures that study income inequality or consumption inequality separately,this paper integrates income inequality and consumption inequality into the same research framework,and analyzes the moderating effect of financial development on income inequality and consumption inequality.In view of the availability of data and the regional nature of financial development,this paper uses provincial urban residents data to calculate the income Gini coefficient and consumption Gini coefficient of urban residents in each province through three methods of fitting the Lorenz curve.Since traditional economic theory generally believes that income is the most important factor affecting consumption,income inequality is also the main factor affecting consumption inequality.However,due to the existence of various smoothing mechanisms,income inequality will only be partially transmitted to consumption inequality.With the reform and opening up and financial marketization,my country’s financial system has developed rapidly.The financial system can provide residents with channels to smooth consumption,and then cope with income shocks.In China,the status of financial intermediaries such as banks has always been in a dominant position in the financial system and has a greater impact on people’s lives.Therefore,it is of great significance to focus on the moderating effect of the deepening of financial intermediation on the income inequality and consumption inequality of Chinese urban residents.First,starting from the macro provincial data,this paper uses a two-way fixed-effect model and robust standard errors to first study the impact of financial intermediation depth on the gap between the income Gini coefficient and the consumption Gini coefficient in the benchmark regression,and then introduce financial deepening and income Gini coefficients.The interaction term of the coefficient is used as a moderator variable of the degree of transmission of income inequality to consumption inequality to study the effect of financial deepening on the degree of correlation between consumption inequality and income inequality.The study found that financial deepening will widen the gap between the income Gini coefficient and the consumption Gini coefficient.At the same time,financial deepening significantly reduces the transmission of income inequality to consumption inequality,and plays a role in smoothing consumption when residents face income shock,rather than financial repression.Second,this paper conducts macro-level robustness tests and heterogeneity analysis to verify the reliability of the results.In the robustness test,this paper changes the measurement variables of financial development,uses different calculation methods of Gini coefficient,studies total income inequality,adds ordinary time trend items and provincial heterogeneity time trend items and removing the time trend of the control variables,the above five tests all draw the same conclusion as the benchmark regression.Finally,this paper tests the micro-level mechanism by which financial development at the macro level can reduce the transmission of income inequality to consumption inequality.Starting from the CHFS household database and using three years of panel data,a two-way fixed effects model and clustering to provincial robust standard errors are used to identify the share of savings held by households,whether they participate in financial markets,and the degree of participation in financial markets as moderating variables of the elasticity between household income and consumption.The findings find that the share of savings held by households,their participation in financial markets and the degree of participation in financial markets reduce the elasticity between income and consumption,hedge against income shocks and promote consumption smoothing.In addition,this section also decomposes total consumption into six types of consumption expenditure,and analyzes which type of consumption expenditure is smoothed by household finance-related variables,providing micro-evidence for this study.