The Impact Of China's Income Distrition On Consuner Demand

Financial crisis in 2008 made foreign demand shrink and thus our exports plummeted, resulting in significant effect on economic growth. In this situation, changing dependence on high exports and high investment model of economic growth and expanding domestic demand, particularly domestic consumer demand has become extremely urgent. However, in order to expand domestic consumption demand we must find out the reasons for the declining rate of consumption. In the existing research of the community, scholars have found that the declining rate of consumption is accompanied by widening income distribution gap in China. But a variety of empirical analysis of multi-dimensional relations between the two needs to be continued.This paper systematically analyzes the relationship between income distribution and consumer demand which is based on the works of previous scholars. The article first reviews the evolution process of income distribution policy since reform and opening up policy in 1978 and describes the path which began from breaking the egalitarian to making efforts to reverse large income distribution gap nowadays. Furthermore, the article explores the driving factors in the reality which push our income distribution policy changing rapidly. The main driving factor is widening income distribution gap. Then the paper has a comprehensive analysis of widening gap of income distribution which includes the gap between the urban and the rural, between the capital and labor and so on. After that we analyze the three components of aggregate demand that are investment demand, exports and consumption demand, moreover, emphatically study the internal structure of consumer demand using the method of the vertical and horizontal comparison.In the process of nonlinear regression analysis of the aggregate consumption function and the per capita consumption function respectively, there is an important discovery: the marginal propensity to consume in the aggregate consumption function is significantly less than that in the per capita consumption function. In order to explain the mystery of the deviation between the two, we carry out the Granger causality test on the deviation and the income distribution gap. The empirical results show that the latter causes the former, that is to say, the income distribution gap causes the substantial deviation between the two marginal propensities to consume. It is noteworthy that the empirical analysis of this part also draws a conclusion: marginal propensity to consume of rural residents is much higher than urban residents'.Based on these studying results, we propose: for the purpose of expanding consumption demand, we must increase the marginal propensity to consume in the aggregate consumption function and we have to strive to narrow the income distribution gap in order to improve the marginal propensity to consume in the aggregate consumption function. To this end, we need to do from the following aspects: to increase preferential policies and capital investment of the rural peasants, to give equal public rights to migrant workers as soon as possible, to reverse the widening income gap between urban and rural residents; to adjust development strategy among eastern, central and western region and promote the full flow of production factors, to narrow the income distribution gap among regions; to strengthen the adjustment to the income redistribution by the governments'revenue and expenditure and effectively perform its function in sharpening the higher and compensating the lower; to improve the relevant legal system so that all income are classified in the list of legal or illegal, reducing access to means of gray income; to regulate capital and labor income and enhance the right to speak of workers in the income distribution constantly.