Please wait a minute...
Frontiers of Economics in China

ISSN 1673-3444

ISSN 1673-3568(Online)

CN 11-5744/F

Postal Subscription Code 80-978

Front Econ Chin    2011, Vol. 6 Issue (1) : 157-170
research-article |
An Empirical Analysis of Income Disparity and Consumption in China
Feng Lou(), Xuesong Li()
Institute of Quantitative & Technical Economics, Chinese Academy of Social Sciences, Beijing 100732, China
 Download: PDF(506 KB)   HTML
 Export: BibTeX | EndNote | Reference Manager | ProCite | RefWorks

Using China’s provincial data from 1991 to 2005, this paper analyzes the impact of urban income disparity on their consumption based on static and dynamic panel data models and state space model. The GMM and Kalman Filter methods are used in the estimation and the variables such as income and price are controlled. The empirical results show that the elasticity of permanent income to consumption is much higher than that of temporary income; and the impact of income disparity on consumption is negative and substantial. A rise of 0.01 in the absolute value of Gini coefficient will cause a reduction of 0.35% in consumption on average. The effects fluctuate with the change of economic structure, consumption expectation and economic cycle. In the beginning years of 1990s, it is positive to enlarge income disparity moderately for consumption. It is the year of 1996 that the negative effect first appears in China. During 1998–2004, an increase of 0.01 to the absolute value of Gini coefficient will result in the reduction of consumption to fluctuate between 0.37% and 0.54%. In order to enlarge domestic demand and promote consumption, the focus should be the improvement of permanent income instead of temporary income, and the vigorous policies to reduce income disparity.

Keywords income disparity      consumption      panel data analysis      state space model     
Corresponding Authors: Feng Lou,; Xuesong Li,   
Issue Date: 05 March 2011
 Cite this article:   
Xuesong Li,Feng Lou. An Empirical Analysis of Income Disparity and Consumption in China[J]. Front Econ Chin, 2011, 6(1): 157-170.
[1] Peiguan Wu,Xiaoye Li,Xue Wang. Understanding the Motivation of College Students to Volunteer: An Integrated Consumption/Investment Analysis[J]. Front. Econ. China, 2015, 10(4): 691-721.
[2] Xiaoli He,Hongwu Wang,Haoran Pan. Energy Consumption, Economic Development and Temperature in China: Evidence from PSTR Model[J]. Front. Econ. China, 2014, 9(4): 695-712.
[3] Survey and Research Center for China Household Finance, SWUFE. Report of China Household Income Disparity[J]. Front Econ Chin, 2013, 8(3): 452-466.
[4] Kunyuan Qiao. Consumption Inequality in China: Theory and Evidence from the China Health and Nutrition Survey[J]. Front Econ Chin, 2013, 8(1): 91-112.
[5] Darong Dai, Kunrong Shen, Ruihua Ma. A Case Against Zero Capital-Income Taxation[J]. Front Econ Chin, 2013, 8(1): 64-90.
[6] Kevin X. D. Huang, Frank Caliendo. Rationalizing Multiple Consumption-Saving Puzzles in a Unified Framework[J]. Front Econ Chin, 2011, 6(3): 359-388.
[7] Xuanhua Xu, Bin Pan. Capital Liquidity and Residents’ Consumption Decision: An Asymmetry Analysis of Economic Prosperity[J]. Front Econ Chin, 2010, 5(4): 622-639.
[8] Yue Li. Analysis on the Disparity in Economic Growth and Consumption between Urban Sector and Rural Sector of China: 1978–2008[J]. Front Econ Chin, 2010, 5(4): 559-581.
[9] FANG Fuqian, . An inquiry into the causes of inadequate household consumption in China—An analysis based on provincial data of urban and rural China[J]. Front. Econ. China, 2009, 4(4): 526-547.
[10] CHEN Shiyi, . Engine or drag: Can high energy consumption and CO2 emission drive the sustainable development of Chinese industry?[J]. Front. Econ. China, 2009, 4(4): 548-571.
[11] LI Ping, YU Guocai. The dynamics of China’s expenditure on R&D[J]. Front Econ Chin, 2009, 4(1): 97-109.
[12] WANG Liping. Chinese consumption and asset returns: An analysis across income groups[J]. Front. Econ. China, 2007, 2(2): 275-288.
[13] LUO Chuliang. Precautionary motivation and consumption insurance: Empirical analysis of household consumption behavior in rural China[J]. Front. Econ. China, 2007, 2(1): 137-150.
[14] ZANG Xuheng, WANG Liping. An analysis of the consumption risk and asset returns of Chinese residents[J]. Front. Econ. China, 2006, 1(3): 395-405.
[15] HUANG Shao′an, SUN Tao. Informal Institutions, Consumption Custom, and Assumption of OLG Model—A Theoretical Analysis on Households’ Consumption Decisions in the Oriental Culture and Belief[J]. Front. Econ. China, 2006, 1(1): 140-152.
Full text