Empirical Analysis On Income Gap Impacts To Economic Growth In China Based On Consumption Perspective

In the process of economic development, how the changes of income distribution gapaffect economic growth has been researched by many domestic and foreign scholars. Asreforming and opening up, China’s economy develops so fast, but the expansion of incomegap also is increasingly standing out. With the rapid development of economy, nowChina’s GDP is just behind the United States and China has became the second largesteconomy of the world. But China’s per capita GDP is in the lower level of the world. Atthe same time, consumption in China has been greatly improved, while the final rate ofconsumption has a downward trend. The consumption decreased brings negative effect tothe economic growth, thus the economic growth pattern of our country is graduallytransform from relying on investment and net exports to consumption-led. Theamplification of income gap is mainly manifested in the regional, between the urban andthe rural, in the industries and between urban residents.This article is mainly focuses on the problem of income inequality to economicgrowth based on consumption perspective. Firstly, by analyzing the impact of income gapon economic growth by Granger causality tests, it is show that there is a Granger causalrelationship between income gap and real per capita GDP, which means the changes ofincome gap effect on real per capita GDP. Secondly, the impact of income gap to economicgrowth can be partly explained by consumption through the test of mediating effects.Thirdly, by establishing the error correction model, the relationship is analyzed betweenincome gap and average propensity to consume of town dweller in short-term andlong-term. The conclusion is that the impact of income gap to average propensity toconsume of town dweller is mainly reflected in the long-term. By establishing thedistribution lag mode on the pre capita GDP and pre capita consumption, the influence toeconomic growth caused by the consumption and its lag is analyzed. The results show thatthe current consumption leads to a motivate effect to the current GDP. So, based on aboveanalysis, it comes to the conclusion that the increasing income gap blocks the economic growth by consumption. Finally, according to the descriptive statistics and Empiricalanalyses, the article offers some proposals for promoting economic development andreducing income gap.