Abstract
Income inequality and consumption gaps between urban and rural residents are prominent problems in the economic transition phase of China. Stimulating consumption, expanding domestic demand, and shifting development modes are inevitable choices for maintaining China’s economy with healthy, stable, and endogenous growth, and the key premise is to clarify the coordination relationship between residents’ income and consumption. In view of that, this study incorporates the spatial factors of three economic zones and time factors of China’s economic transition into an analytical framework. By transforming discrete data into continuous functions, we compared the regional differences and temporal characteristics of the relationship between residents’ income and consumption based on the two perspectives of static absolute level and dynamic growing speed. The result shows that: (1) There are significant differences in the absolute levels of original income and consumption among residents in the eastern, middle, and western regions of China, whereas the growing velocity and acceleration of income and consumption do not have significant regional differences. (2) There is a highly positive canonical correlation both in the absolute growth amount and dynamic growth potential of residents’ income and consumption, whereas their nonlinear co-variation has obvious temporal characteristics, and the degree of canonical correlation has significant regional differences. Based on these conclusions, China’s government need not consider regional factors too much when formulating and implementing policies to narrow residents’ income gap and stimulating consumption in order to expand domestic demand, but should discriminate the specific coevolving period of income and consumption and take into account the difference in average consumption rate of different social strata.
Highlights
The balance between consumption and income is central for the government to formulate macroeconomic policies
During the “13th Five-Year Plan,” the critical period for China to moderate a prosperous society in all respects, stimulating domestic demand, especially the consumption demand of residents, is the inevitable choice to realize the endogenous growth of China’s economy, and the key premise is to find out and eliminate the chronic obstacles that restrict residents’ consumption
The Keynesian absolute income hypothesis holds that there are differences in marginal propensity to consume among different income groups, and the degree of urban and rural inequality is related positively to the consumption gap of residents [1,19], the standard life cycle-permanent income hypothesis holds the opposite view that consumers’ marginal propensity is not related to income distribution, which means the law of declined marginal consumption is uncertain, and there may even be a negative effect [4,20,21]
Summary
The balance between consumption and income is central for the government to formulate macroeconomic policies. As a developing country with a typical two-pole economic structure, China has long-standing problems, such as unbalanced economic development between urban and rural areas and large income gaps among residents in different regions, which has led to significant regional and temporal differences in the stimulating effect of income promotion on the consumption of growth [12,13,14,15,16]. Due to the constraints of China’s industry structure, separation of urban and rural investments in facility construction, aggravation of aging population and changing concept of pension system, and the coevolving process of residents’ income and consumption exhibit obvious nonlinear temporal characteristics [14,22,23] with significant regional differences [5,12,16,24]. The results can provide empirical references for Chinese governments when formulating and implementing polices to enhance consumption level, optimize consumption structure, and stimulate domestic demand
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