Income Uncertainty, Keeping Up With Joneses And Consumption

In recent years, while residents'income grows continuously in our country, residents ' consumption level has becoming weak, the average propensity to consumption has the downward trend, and the average propensity to save gets higher and higher. This article describes the status of domestic consumption, and deduces the consumption function with external habit formation (keeping up with joneses) and income uncertainty based on the theory of life cycle-permanent income hypothesis, which is used to explain the reason of the consumption becoming weak. By using urban residents'economic data, This article established a panel data model to analyze the relationship of income uncertainty keeping up with joneses and consumption in china town. As my result shows, income uncertainty has a negative effect on consumption and the effect of keeping up with joneses on consumption leads to the declining of the average propensity to consumption and weakens the negative effect which income uncertainty brings to consumption. At last, according to the estimation results, there are some suggestions for increasing the consumption level of residents.