Analyzing the Impact of Household Income Sources on Consumer Behavior in China – Based on Mental Accounting

Abstract

With the continuous development of the economy and society in China and the improvement of people’s living standards, the consumption behavior and consumption structure of families in China have undergone significant changes. As an important source and basis of consumption, income has an influence on consumption behavior. Based on the mental accounting theory in behavioral economics, this paper uses the data from China Family Panel Studies (CFPS) to examine the differential impact of different sources of income on the consumption demand of households in China from the micro level. In terms of theory, based on the basic assumption and fact of elasticity of consumer demand, the model directly assumes that there is mental accounting effect in household consumption behavior; that is, the marginal propensity to consume from different sources of income has a significant difference. By establishing a regression model to analyze the influence of different sources of income on consumption, the mental accounting effect of consumption among households in China is verified. According to the theoretical hypothesis and empirical tests, this paper provides policy suggestions for the government. The government should increase people’s disposable income. Increasing the proportion of transfer income and property income can diversify people’s sources of income and promote consumption as well as economic growth. Finally, the social security system should be improved to promote the consumption level of low-income families.