The Effect Of Gap In Income Distribution On China Residents’Consumption

Consumption is one of the important factors to promote economic growth, but in China its important role is often overlooked. The global financial crisis in2007reduced exports, and the long-term over-investment led to economic structural imbalance, China’s economic growth is retarded. Then people started to realize the importance of consumption. Since the implementation of China’s reform and opening up policy, another phenomenon with the consumption declining is the gradual expansion of the income distribution gap. This paper analyzed the reasons of the declining in Chinese consumption rate, from the angle of the widening income gap, and put forward some feasible suggestions to improve income distribution and boost domestic consumption. Those points are of practical significance to achieve sustainable economic development.The research object of this paper is the effect to total social consumption from the widening income gap. We analyze the mechanism that how the income distribution gap influence the total consumption, from a point that different income groups have different savings motives. As different income groups face different internal expectations and external constraints, they have different propensities to save and consumer behaviors. Based on the utility maximization assumption, this paper analyzed the life cycle saving motivation, the precautionary saving motivation, the Liquidity constraints saving motivation and the bequest saving motivation. And draw a conclusion that the curve to describe the relationship of a person’s saving propensity and his income is shaped as "U". Then further concluded that the fairer the income distribution, the greater the total social consumption.This paper uses empirical analysis method to test the relationship between the Gini coefficient and the ratio of consumption and respectively analyzes which factors can influence China’s urban and rural residents’propensity to consume. Empirical analysis suggests that:(1) there was a negative relationship between the Gini coefficient and China’s household consumption rate. Unequal distribution of income is inevitably lead to the decline in total consumption. In order to stimulate domestic demand, the first thing need to do is the reform of the income distribution to culture middle class;(2)among the factors affect the propensity to consume, the fluctuation of the growth of residents expected future income is the most important one. The greater the risk people expect to have in further time, the more the precautionary saving they set aside, and the less they consume. To expand domestic demand, some macro-control measures must be taken to reduce the uncertainty they expected;(3) as China’s consumer credit market is still underdeveloped, credit factors have little effect on household consumption, but the role the financial system play in improving income distribution and promoting consumption cannot be ignored. And this requires the guidance of the government’s macroeconomic policies.The innovation of this paper is that based on the Yuan Zhi gang, Zhu Guo lin (2002) model of income and the propensity to save, we add the liquidity constraints propensity to save to their original model, and analyze the influence of consumer credit on household consumption.