Research On The Impacts Of Financial Frictions On Wealth Inequality

Since the reform and opening-up,rapid economic growth has created huge social wealth.According to the study of the Chinese National Balance Sheet 2020,after 21 years of development,The GDP has risen from 10 trillion yuan in 2000,Climbed to more than 100 trillion yuan in 2020;and the wealth stock rose from less than 39 trillion yuan in 2000 to 675.5 trillion yuan in 2019,of which the household sector wealth was 512.6 trillion yuan.With the rapid increase in the level of residents' wealth,wealth distribution pattern has also undergone profound changes.The large wealth gap and unequal distribution issues have gradually aroused the attention of all sectors of society.Finance is the lifeblood of the economy and an essential way of resource allocation.The creation of social wealth is inseparable from the support of finance.The services provided by finance are inseparable from the material capital needed for enterprise production to the housing assets purchased by the family.Therefore,the degree of financial market development is often related to the distribution of individual income and wealth.However,the development of financial market is not yet complete,the unbalanced distribution of financial resources and financial exclusion have been the severe problems faced by the small and medium-sized enterprises(SMEs).This article aims to clarify the relationship between financial market friction and wealth inequality.In reality,financial frictions exist in many fields and have different manifestations.Specifically,this article chooses to take the perspective of enterprises and households to study how the credit constraints that exist in the production of enterprises and households purchasing houses affect the savings and wealth accumulation behaviors of enterprises and households,thereby causing economic wealth inequality.On this basis,this article focuses on inclusive financial policy,which aims to expand the scope of financial services and reduce the financing difficulties of the poors and the SMEs,and further study its impact on reducing wealth inequality.Wealth inequality is not only an economic issue but also related to fairness and justice.It is an important dimension of social stratification and social mobility.At a time when development is not yet fully balanced,it is particularly important to study the formation mechanism and coping strategies of wealth inequality,and it has important theoretical and practical significance for China to achieve inclusive growth and the goal of "common prosperity".The issue of wealth distribution in China is closely related to its unique institutional background.The economic system reforms,housing commercialization reforms,and financial system reforms carried out in the late 1990s have profoundly affected wealth distribution pattern.First of all,the reform of the economic system has greatly stimulated the vitality of the enterprise as a market entity and triggered the "entrepreneurial wave".Individual Industrial and commercial households and private enterprises have been growing fast,creating huge social wealth.Secondly,the housing commercialization reform abolished the welfare housing allocation system under the original system.Under the cultural tradition of "homeownership" in our country,housing purchase has become an important preference of Chinese residents.With the rise in housing prices,housing has become an important tool for the storage of value for Chinese residents,and the investment properties of housing have strengthened.Finally,after the reform and opening up,although my country's financial system has continued to improve,there are still obvious shortcomings in serving the real economy,especially the poor service effect forthe SMEs,private lending is prevalent,and private enterprise financing has greater financial friction.At the same time,the development of my country's capital market is still not sound.Residents lack investment channels,making housing the main store of value.In the context of my country's economic transformation,the savings and wealth accumulation behaviors of Chinese enterprises and households are uniquely affected by the financial market.China's high savings rate has always existed.According to data from the National Bureau of Statistics,in 2017,the savings rates of households,government,and enterprises in China were 22.0%,3.4%,and 21.2%,respectively.This shows that households and businesses have high savings motives.And wealth inequality is closely related to savings.In summary,to understand the formation mechanism of wealth inequality in my country,we need to understand the impact of financial factors on the savings and wealth behavior of enterprises and households.The main content and conclusions of this article are as follows:1.The impact of corporate financial friction on wealth inequality.The reform of the economic system has stimulated the vitality of market entities.Private enterprises,especiallythe SMEs,have become an important driving force for economic development.The financial market friction faced by private enterprises is not only related to the creation of social wealth but also affects the distribution of wealth among individuals.This article first reviews the standard framework for studying wealth inequality,the hypothesis and mechanism of the heterogeneous agent model,and elaborates its logic and deficiencies in analyzing wealth inequality.On this basis,the establishment of financial frictions that entrepreneurs have borrowing constraints in the capital leasing market is introduced,and the mechanism of financial frictions on wealth inequality is studied.The results show that after introducing financial friction,the model can overcome the inadequacy of the poor fit of wealth distribution under the standard framework,and enterprises will generate self-financing behavior to alleviate financial friction,that is,increase wealth accumulation,which produces wealth concentration and inequality.Increasing financial frictions faced by enterprises will exacerbate wealth inequality in the economy.This article further explores the interactive mechanism of income risk and financial friction faced by entrepreneurs.The results show that as the income risk of entrepreneurs increases,they will strengthen their precautionary savings motives and weaken their self-financing motives,thus having the first reduction and then an increase in wealth inequality.Under different income risk levels,the effects of financial friction on wealth inequality are also significantly different.As income risks increase,the effect of policies to improve financial frictions has gradually strengthened,that is,the increase in income risks has magnified the effect of wealth distribution improved by reducing income risks.2.The impact of family housing financial friction on wealth inequality.The family is an important microscopic subject of economic operation,and its savings and investment behavior characteristics determine its wealth accumulation and affect the distribution of economic wealth.In our country,the financial friction faced by families mainly comes from housing purchases and investments.Housing is the most important form of an asset on the family balance sheet,and housing assets account for more than 70%of China's household assets.Families are subject to borrowing constraints when purchasing houses,that is,loans from financial intermediaries must not exceed a certain limit.This is also a major form of financial friction in the macroeconomy,which corresponds to the actual "down payment ratio" policy.This paper incorporates this form of financial friction into the expansion model that includes housing assets,and characterizes my country's high real estate income,and studies its wealth distribution effects.The study found that reducing the financial friction of household purchases,that is,relaxing their borrowing constraints,will exacerbate wealth inequality in the economy.This article also studies the impact of housing loan interest rate fluctuations on household wealth distribution.The study finds that an increase in housing interest rates will reduce wealth inequality.Finally,this article also studies the impact of the real estate tax on wealth distribution and finds that the introduction of the real estate tax will greatly improve wealth inequality in the economy.3.Mitigating the impact of financial friction on wealth inequality-the role of inclusive finance.Inclusive finance is a financial system that can effectively and comprehensively provide services to all classes and groups of society.The main task is to allow farmers,poor people,and the SMEslisted outside the formal financial system to obtain prices in a timely and effective manner.Reasonable,convenient,and safe financial services.The original intention of inclusive finance is to alleviate financial frictions in small and medium-sized enterprises in a targeted manner and to better serve the poor.So,can inclusive finance alleviate wealth inequality?Based on previous research,this article enriches the micro-foundation of corporate financial friction and introduces different settings of inclusive finance to study the impact of inclusive financial policies on wealth inequality before and after.Studies have found that inclusive financial policies can effectively promote individual entrepreneurship,achieve wealth accumulation,and reduce wealth inequality in the economy.Welfare analysis found that the inclusive financial policy has significantly improved the welfare of individuals with low wealth and high productivity,and has little effect on the welfare of high wealth groups.Based on the main body of this article,this article has three innovations:(1)In terms of research methods,based on drawing on foreign research,the traditional representative individual hypothesis was discarded when establishing the model,and the continuous-time heterogeneous agent hypothesis was used to construct a theoretical framework suitable for the analysis of inequality.Domestic research on inequality is mostly based on empirical research.This article expands the theoretical analysis of wealth inequality.Introduce corporate financial market friction to build a framework for analyzing my country's wealth inequality from the perspective of enterprises.Incorporating housing assets and housing financial friction into the analysis framework of the model,explain the formation of wealth inequality in my country from the perspective of family housing.Based on this research,combined with the inclusive financial policy,in reality,analyze its wealth distribution and welfare effects.(2)This article enriches the micro-mechanism of household savings and wealth accumulation behavior in my country.Analyze individual savings and wealth accumulation behaviors by constructing models for the individual's preventive saving motives,self-financing motives,and housing investment motives.This leads to the conclusion of the micro-transmission mechanism of inequality,which links individual behavior with economic inequality,and enriches this type of research.(3)This article has enriched the literature on financial frictions and the impact of real estate on macroeconomics.There are a large number of documents that focus on their economic effects,while this article focuses on the income distribution effects of the two.It is found that financial friction not only reduces the efficiency of economic activities through the generally considered impact on macroeconomic fluctuations and capital mismatches but also affects income and wealth inequality through a series of mechanisms.