China’s Income Inequality And Economic Growth

Income inequality has brought about two aspects of social phenomenon:one is that criminal rate rises with the worsening of income inequality, the other is that growth rate declines with the rising of criminal rate. Based on these facts, this thesis will analyze how income inequality influences economic growth with the view of economic method. With this question as object, theoretical and empirical study won’t analyze the induction of inequality to growth with traditional views such as credit restrict, political vote, social stability, and saving discrepancy, but with a new view of a research framework of supply and demand. This study is important not only to interpret transform of China’s economic growth mode, but also to realize the sustainable development, from aspects both of theoretical research and public policy. Main conclusion is that income distribution cause positive "excitation effect" and negative "depression effect", and the final influence depend on its net effect.From the theoretical analysis, income inequality influences economic growth with the channel of supply as following:firstly, income inequality goes against with social human capital accumulation; secondly, under the circumstance of economic transition, income inequality causes both positive "excitation effect" and negative "depression effect" to social labor input; lastly, income inequality on one side makes innovation funding input more, on the other side causes technical productivity to decline constantly. Income inequality influences economic growth with the channel of supply as following:firstly, income inequality causes consume demand to decline; secondly, income inequality makes social investment decrease; thirdly, progressive taxation makes government gain more financial revenue from high-income in the case of income gap expanding, so income inequality strengthens government’s leading role in the national income distribution pattern, and the distribution policy will also be upon government; lastly, income inequality promotes the development of foreign trade by the channel of labor and consume, but this induction is malformed.From the empirical analysis, income inequality on the supply aspect increases the labor input and capital accumulation, and then promotes economic growth; but also impedes the technical progress and human capital accumulation, so restrains economic growth. Income inequality on the demand aspect declines the rate of consume amount on the GDP, and then lowers the growth rate; but also increases the rate of capital formation and net export amount on the GDP, and then improves economic growth. Based on these conclusions, this thesis will unscramble China’s economic growth mode from the view of income distribution as following:income inequality and it’s worsen on one side enhances capital accumulation and lowers human capital one, and thus, independent innovation is so lack that social economic growth lies just on factors inputs, not on independent drive; on the other side, it causes high saving rate, and thus makes residents’ consume level so low that high economic growth is realized just by investment and net export. Objectively, this economic mode of "factors drive" and "export oriented" actually promotes economic growth at the initial stage, and brings about "China Miracle"; in contrast, it also causes some constraints such as about land, energy, environment and talents, so the economic growth mode formed by income distribution institution is not sustainable.Lowering the income inequality and realizing the harmonious development, should makes more institution design and policy adjustment under the basis on reconstructing people’s action consciousness. Some steps should be adopted:Firstly, we should set up the industrial platform for economic entity to fully play to resource endowment. We should develop high-new technological industry for talents of "technology kind", develops cultural industry for talents of "knowledge kind", tamp traditional industry for talents of "strength kind" and "service kind". Secondly, we should pun the quality basis for economic entity to fully play to resource endowment. We should persist in the logos of education oriented. With reform and innovation as impetus, and with servicing for society as guiding, we should drastically increase public input and improve fostering quality for education and training, energetically promote opportunity justice for education share, vigorously strengthen capital support for teaching body, to propel scientific development and enhance modernization level of educational training enterprise. Thirdly, we should found the equal mechanism for economic entity to fully play to resource endowment. We should move forwardly to explode monopolistic barrier of the labor market, insist virtuous-only logos of talents selection, cancel traditional barrier of partition between city and countryside, realize optimizing allocation of factors free-pouring, restrain special right of special groups, and promote optimum development of social capital. Fourthly, we should adjust distribution structure for economic entity to fully play to resource endowment. We should punish illegal activities, hit illegal income, fight against corruption, constraint gray income, broaden invest channel, incite property income, perfect excitation mechanism, and increase wages income. Lastly, we should perfect market mechanism for economic entity to fully play to resource endowment. We should deepen the reform to perfect formation mechanism of market price continuously, normalize the order to realize competitive mechanism with justice and order, and change the ideal to build exchange mechanism and break administrative monopoly among regions.