Effects of common prosperity on China's education expenditure—Empirical analysis based on CFPS quasi-micro panel data

Abstract

What effects do decreased income gaps have on promoting a high-quality economy under gradual common prosperity in China? The work initially answered the question by focusing on education expenditure. It is a form of consumption that has great significance to the future development of residents and overall social and technological innovation. The impact mechanism and pathway of income gaps on education expenditure were systematically analyzed from a theoretical level in the work. The nonlinear relationship between the two was empirically verified based on CFPS quasi-micro panel data. The law of diminishing marginal propensity to consume in mainstream economics could be challenged when high-income families focused on the investment effects of education and social status-seeking of consumption. The same could be true when low-income countries focused on the investment effects of education and the catch-up effects of consumption. Consequently, changed income gaps had an inverted U-shaped impact on social education expenditure. The consumption propensity of high-income families was higher than that of low-income ones if income gaps were smaller than the fixed consumption distance. Widened income gaps increased social education expenditure at this time, and vice versa. The empirical analysis further found that income gaps in most districts (counties) in China exceeded the critical value during the sample period based on the verification of an inverted U-shaped relationship. Therefore, narrowed income gaps by common prosperity had no significant inhibitory effect on education expenditure and human capital accumulation. The critical value would maximize overall education expenditure to promote a high-quality economy in China.