Research On The Impact Of Income Distribution Gap On Consumption Demand In Chinese Urban Residents Based On Theil Index

The relationship between income distribution gap and consumption demand has been a hot topic in economics. As China's reform and opening up process going, our economy has experienced rapid growth more than thirty years, but the income distribution gap shows a widening trend. It directly or indirectly affected consumption demand of our residents and made the rate of consumption at a low level for a long term. This paper used empirical research methods to study on how the income distribution gap influence the consumption demand and try to explore feasible policy to narrow down the income distribution gap and enhance the consumption demand, with some theoretical and practical significance.In the main part of this paper, we firstly introduced domestic and foreign classical theory and researches on how the income distribution gap impacts the consumption demand. Since Keynes built a relatively complete theory based on effective demand and absorbed the theory of the absolute income to explain the causality relationship between income distribution gap and consumption demand, the Post Keynesian scholars such as Kalecki and Weintraub carried out researches to explain how the income distribution gap impacts consumption demand on the basis of Keynes from different perspectives, to make their own interpretations. Dusen Bailey, Modigliani, Friedman and other scholars have also made different issues based on the consumption function theory, which were raised relative income hypothesis, life-cycle hypothesis and permanent income hypothesis. Through reviewing these classical theories, it was not difficult to find out that, although they select different research perspective, these foreign scholars carried out effective demand researches basically around the income distribution gap, and from their theoretical assumptions or the conclusion parts, they directly or indirectly confirmed that income distribution gap was an important factor influencing consumption. However, most foreign scholars started from the theoretical discussion, and empirical research was insufficient, making the research basically stay in the theoretical discussion. While domestic scholars used data to make some empirical research, but also obviously existed some problems. The most important issue is the indicators measure selection of income distribution gap and to prove that income distribution gap impact to consumer demand. Based on the above considerations, this paper highlighted the following as the representative of the Theil index of income distribution gap measure indicators. Considering both the advantages and disadvantages of each index, we determined the academic level of the five criteria of public reasons. We find, from the decomposition of the point of view, grouping requirements point of view, the data requirements and the degree of actual agreement considerations, Theil index was the best measure and index of income distribution gap in China.Therefore, in the next part, the empirical analysis used the relevant data of urban residents in China from 1992 to 2009, and calculated the Theil index of urban residents. The calculated results were basically corresponding with China's economic environment, and fully reflected the changes of income distribution gap in China history. Then, we carried out an econometric modeling of data stationary test (unit root test) and co-integration tests, this paper put the Theil index time series data into the classical model of consumption function, and used the ordinary least squares method to carry out empirical test of the Keynesian causal explanation on the income distribution and consumption. Based on the conclusions of theoretical analysis and empirical analysis, last part presented policy recommendations to make harmonious development of income distribution and consumer demand.