A Study On The Differences In The Welfare Costs Of The Business Cycles

With the period that the Chinese economy transmits more and more deeply, more and more contradictions and problems were appeared, in which can't be ignored is that the welfare losses caused by the business cycles. And the State's "twelfth Five-Year "plan of national economic and social development pointed out clearly that the subject of this Five-Year plan is the "people have more and more riches". In order to carry it out and maintain sustainable economic development, the State put more and more attention to this issue. Moreover, the welfare cost of business cycles is an important topic in modern macroeconomics. And the paper, which adheres to the Lucas's theoretical model, found a new direction about the empirical data and had important theoretical and practical significance.This text divides into six parts:The first chapter mainly introduced the background and meaning about the topic, and explained the basic way of thinking of thesis, the research method, and a little probable creative and the weakness in the paper. Chapter II is a related theories overview, checking the domestic and the foreign related cultural heritage, commenting the related theories from three depart: data generation and assumptions of risk aversion coefficient, prospect equation and the empirical results. In chapter III, the theory of the welfare cost of the business cycles and the Lucas's theoretical model were simply described.Chapter IV firstly describes the selected data and its related processing, and its stability test was carried out, the conclusions draw that they are smoothly. Next, the paper carried out a detailed comparative study to the welfare cost of business cycles between china and U.S from the following aspects:firstly, by using of the annual personal consumption expenditure data from 1992 to 2009 of china and the same data from 1950 to 2009 of American(previous studies used mostly the level of per capita consumption data),and a comparative study was carried out, the calculation argued that the welfare cost of consumption fluctuations in China is 40 times higher than the U.S. And based on this, the paper gives a preliminary explanation of the welfare costs of the business cycles from residents income volatility, consumer credit structure and financial innovation degrees, influence of government spending on private consumption, and system of market economy.secondly, by the using of annual consumption structure data from 1995 to2009 of urban and rural in China, the quantitative analysis indicate that the welfare costs in rural is 1.6 times higher than it in urban. And about the health care, transportation and communication, and entertainment and educational,the welfare costs in urban are respectively,3.16,8.12 and 1.66 times higher than them in rural. Then the welfare cost of business cycles has a clear difference between urban and rural areas. And based on this, the paper gives a preliminary explanation of the welfare costs of the business cycles from income level, difference of education between urban and rural, liquidity constraints, and system of social securityThirdly, by the using of the per capita annual consumption expenditure data of urban households in china by income percentile from 1995 to 2009 and the same data of the households in American from 1984 to 2009.the comparative study shows that the welfare costs both in China and in American were decreasing by increasing of income level. And based on this, the paper gives a preliminary explanation of the welfare costs of the business cycles from income level and tax effect.Fourthly, thinking of the combination of the income percentile and the consumption structure, by the using of consumption structure data by income percentile from 1995 to 2009 in china and the same data froml999 to 2009 in the US. The comparative study shows that the welfare costs of business cycles in China and American have differences under the income percentile and the consumption structure. Specifically:with increasing of income levels of China's urban residents and US residents, their nondurable consumption by the representative of clothes and food,and the durable goods by the representative of the housing, in other words, goods consumption of which the welfare costs of business cycles had a decreasing trend. However, the services consumption by the representative of the health care consumption of which the welfare costs showed a increasing trend in the United States and urban in China with the increasing of the income levels. And the three highest income classes of the urban people in China and total of five income classes of the people in the US had a highest welfare cost in the medical consumption. That suggests that we should pay more attention to health care consumption. And based on this, the paper gives a preliminary explanation of the welfare costs of the business cycles from the changes in consumer preferences and the consumption structure.Chapter V is a summary of the empirical analysis, and based on the results of the empirical analysis, the government should take measures, which include increasing income and stabilizing the price level; Promoting consumer credit system and changing awareness of the consumer; establishing a sound social security mechanism and compensating risk expenditures of the system reform; guiding scientific consumption and changing the consumption structure; paying attention on that the fiscal policy can smooth consumption fluctuations; deepening market reforms to stabilize consumption fluctuations, and reduce the welfare cost of business cycles.Overall, the paper, by using of the consumption data between China and America, gave a comparative study about the welfare costs of the business cycles between China and America. The probable innovation performance in the paper: firstly, the paper, by using of the consumption data of both China and the U.S, conduct international comparative study. Secondly, conduct a comparative study from the aspects of income stratification consumption structure and the combination of the two terms. Thirdly, the paper found the welfare costs of business cycles have significant differences to different income disparities and different consumption structure between China and the U.S, and it have a significant difference between urban and rural areas in China. Fourthly, to the reason of the differences, the paper gives an innovative explanation from the system of the market economy, structure of consumption credit and financial innovation level, influence of government spending on private consumption. In addition, to reduce the welfare cost of economic cycle, the paper puts forward some new policy, for example perfecting and deepen the system of market economy and change the resident's consumption structure and so on. These provide theoretical support under the economic sense to take stable and sustainable economic development strategy in China.