Based On The Threshold Of The Financial Perspective Of Study On The Relationship Between The Inflation And Income Inequality

Along with China’s reform and opening-up process, and the significantly increased level of income, the living standards of Chinese residents have been significantly improved. However, the question of how social wealth is distributed has been paid more and more attention to by the residents. Especially, the problems of income inequality between urban and rural, between different areas, and between different groups are highlights, and have a trend to increase; therefore, the accompanying social problems caused by these problems are more and more severe. This problem of income inequality, is disturbing the urban and rural development in China, and the development goals of building a harmonious society. In the meanwhile, China’s inflation rate continued to rise. In June2011CPI was6.4%, which is the highest since35months, and has been paid a lot of recent attention by the society. If we consider the trend of asset prices, the inflation expectations of the residents and the price level due to the residents feelings, the severity of China’s inflation is actually far more than the level announced by the National Bureau of Statistics. Sustained inflation can cause redistribution of income and wealth, which could make a significant impact on income inequality.In times of inflation, financial markets are important way to avoid inflation. It has an important influence on different income groups to avoid the effect of inflation. For a long time, China’s underdeveloped financial markets, financial products and services a single, residential investment channels and financial resources are mainly concentrated in cities, with a clear dual characteristics. These are the formation of a certain financial threshold. As the state of financial markets to hedge against inflation for different income groups have different effects on the wealth level of urban and rural residents, income levels have a significant effect. Therefore, according the reality of our country, it is very necessary to make theoretical analysis and empirical tests research to find out what it played a role in the relationship of inflation and income inequality from the perspective of financial markets.This paper first analyzed the redistributive effects of inflation on the income of Chinese residents, and that inflation to expand the urban and rural residents’income gap between regions, the income gap between the income groups as well as different industries. Second, we analyzed China’s underdeveloped financial market regulation, according to the financial threshold theory, pointing out that in the context of China’s financial markets are underdeveloped, due to the existence of the financial threshold, the different income groups in the enjoyment of the relationship between inflation and income inequality with the significant difference in the financial services, high-income groups have more financial assets, and accumulated a wealth of investment experience, able to withstand a certain degree of risk, and therefore more easily across the financial threshold, use of the financial market to avoid the shrinking role of inflation on income to carry out increasing the value of the assets. Low-income groups by their own income levels, the constraints of location, transaction costs, hard or unable to enjoy the financial services, insurmountable financial threshold to take advantage of the financial markets to withstand the negative impact of inflation on income, the country’s financial market is not developed state of the high-income groups to circumvent the effect of inflation is higher than the low-income groups, and ultimately exacerbate the unequal status of our income. Monetary markets have an important regulating action on the relationship between inflation and income inequality. By establishing mathematics models, we analyzed this relationship between inflation and income inequality in China through the perspective of threshold of wealth. The results indicated that, because of the wealth threshold in China, inflation raised this threshold of avoiding inflation, and the threshold further reduced the effects of avoiding inflation.Further empirical studies attempt to verify the relationship between inflation and income inequality in China. Use of time-series data of1978-2009years, and the introduction of control variables:the level of financial development, level of opening up, level of urbanization, economic growth and average level of education, the Johansen cointegration test results that has a stable relationship between inflation and income inequality, inflation has widened income gap; further the Granger causality test, inflation is the Granger cause of income inequality, between inflation and income inequality does existsignificant causal relationship, and ultimately verify the positive effect of financial markets on the relationship between inflation and income inequality in China.Finally, according to China’s actual situation, Proposed to reduce inflation and Improve the social security system, improve financial market investment mechanism targeted policy recommendations.