Research On The Applicability And Improvement Of Engel’s Coefficient

Since the communiqué of the 18 th Party Congress first clearly put forward the goal of building a moderately prosperous society in all aspects,China has basically reached a moderately prosperous society in all aspects by the 100 th anniversary of the founding of the Communist Party of China in 2021.How to confirm a well-off society? The more popular view is that the Engel coefficient is between 40-50%,but the question is whether this criterion is in line with China’s national conditions? Can the Engel coefficient be used directly to measure the living conditions of Chinese residents?The Engel coefficient originated in the mid-nineteenth century when German statistician and economist Engel proposed the Engel’s Law,which believed that the household expenditure on food could reflect the actual living standard and thus measure the living standard of residents in a country or region.However,it is found that the application of Engel’s Law in China has some "unconvincing" phenomena,such as not accurately reflecting the living standard of residents and even contradicting the actual situation.Based on the history of Engel’s coefficient and Engel’s law,this thesis analyzes them and explains some shortcomings of their application in the context of current national economic and social development.In order to explore the real reasons for the distortion of Engel’s coefficient,this thesis analyzes them in the context of China’s actual situation and finds that when Engel’s coefficient is compared horizontally with the living standards of provinces(municipalities and autonomous regions),it cannot fully and truly reflect the living standards of residents in each province;when it is compared vertically,Engel’s coefficient decreases too quickly and overestimates the speed of the improvement of national living standards.Based on the analysis of the reasons,this thesis puts forward suggestions for improvement:(1)improvement of molecular items.The expenditure on food is divided into food,tobacco,alcohol,beverages and food services,and the three items with higher elasticity coefficients,namely,tobacco,alcohol,beverages and food services,are removed from the numerator to make it more relevant to the original intention of Engel’s law,i.e.,the necessary expenditure to maintain daily life.(2)Improvement of the denominator term.Through model building and hypothesis testing,three expenditures on housing,education and medical care are excluded because they have a greater crowding-out effect on food expenditures.On the basis of the improvement of the numerator-denominator term,the revised formula of Engel coefficient is proposed.The model for calculating the adjusted Engel coefficient in this thesis uses empirical data,and the adjusted Engel coefficient can more truly reflect the living standard and quality of life of residents than the traditional Engel coefficient from both horizontal and vertical perspectives.