The Impact Of Social Security On Household Consumption

In recent years, although the economy grows fast in China, the consumption rate decreases and the investment rate increases. According to<China Statistical Yearbook2012>, from2000to2011, the consumption rate has decreased from62.3%to49.1%, while the investment rate has increased from35.3%to48.3%, which demonstrates that China has formed a typical " low consumption, high investment" economic structure. Meanwhile, China’s consumption rate is far lower than the world average level. According to the data released by the World Bank, since2000, China’s consumption rate has been at about40%, while the world average level has maintained at about61%. Therefore, expanding domestic demand has become the key to China’s economic growth. A large number of scholars studied the phenomenon of insufficient in domestic demand, and found that there are many factors that affect the residents’ consumption, such as disposable income, price level, family structure and so on. The imperfect of social security system is also the main cause of the insufficient in domestic demand. Nowadays China’s social security system is experiencing the transition from traditional type to modern type, there are also many problems in the system, for example, the incomplete item, the low standard level, the poor coverage. These factors inevitably affect the impact of the social security on the household consumption. Therefore, studying the relationship between the social security and household consumption is meaningful.China’s dualistic urban-rural economic structure brings about big gap between urban and rural area in income level and consumption level. In2011, the rate of disposable income between urban and rural area is3.13, the ratio of consumption is3.03.The dualistic urban-rural economic structure also leads to the dualistic social security structure, and there is a huge difference between the urban and rural in social security coverage and standard. At present, the rural area has established a system including pension insurance, medical insurance, unemployment insurance and minimum living security. While the rural social security system is still dominated by family protection, until recent years the government gradually began the construction of rural social security system. These gaps make the impact of social security on consumption different in urban and rural area, so this article analyzes the impact of social security on consumption for urban and rural area separately, and also analyzes the impact of social security differences on the consumption differences.First, this paper analyzes the action mechanism of social security. And then analyses the effect of social security on the household consumption based on the extended Life Cycle Theory. The specific contents are as follows:Chapter1, introduction. This part includes the background and significance, the literature review, the paper structure arrangement, the innovations and shortcomings.Chapter2, the related theories of consumption and the effect analysis of social security. This chapter mainly introduces the traditional Life Cycle Theory and extended Life Cycle Model, and explains the effects of social security on the household income and consumption from two aspects:the income redistribution effect and the precautionary savings effect.Chapter3, the current statuses of household consumption and social security in China. This chapter illustrates the status mainly from two aspects:international comparisons and urban-rural comparisons.Chapter4, the empirical analysis. First, taken the extend Life Cycle Model as the theoretical basis, the paper selects the1993-2011annual time series data and analyses the impact of social security on household consumption for multiple regression analysis from urban and rural area separately. Second, taking use of Co-integration Model and Error Correction Model, this paper analyzes the long-term impact of social security gap on consumption gap based on GE index.Chapter5, the main conclusions and policy recommendations. The article makes a few suggestions on how to improve the social security system and reduce the gap between urban and rural social security.The main conclusions of this paper are:Transfer income has a promoting effect on the consumption of urban and rural residents, but the effect on urban residents is greater than the effect on rural residents; while initiative income plays a more important role in promoting consumption than transfer income. The co-integration relationship of urban-rural initiative income gap, transfer income gap and consumption gap promotes the expansion of consumption gap between urban and rural areas, and the effect of initiative income gap between urban and rural is much greater than the transfer income in expanding the consumption gap.This paper has two main innovation points:First, the article analyzes the effects of social security on the household consumption from the urban-rural comparative perspective. On one hand, the paper analyzes the differences of income, consumption and social security level between urban and rural areas in the dynamic way. On the other hand, in the empirical analysis, the paper makes regression analysis for urban and rural areas separately, and compares the direction and intensity of the impact of social society on household consumption. Second, the variable is novel. The residents’ income is divided into initiative income and transfer income to distinguish the impacts on consumption of different types of the income. In the empirical analysis, the paper takes use of GE index as a measure of social security gap and consumption gap to illustrate the long-term effects of social security gap on consumption gap.This paper has two main shortcoming points:First, we had to use transfer income data instead of social security expenditure, because the rural social security data is difficult to obtain. Second, this paper is only for nationwide consumption gap and social security gap between urban and rural areas, but does not study the differences between urban and rural areas of each region and each province.