The Effect Of Income Inequality For The Economic Growth

Since the reform and opening up began more than30years, China has gainedspectacular economic growth, but the income inequality has showed the tendency ofexpansion. How the worsening income distribution gap affects China’s economicgrowth? This is the main problem addressed by this study.This dissertation focuses the effect of income inequality for economic growth byusing the theoretical analysis and empirical analysis. First, we focus the status quo,causes and consequences of the income inequality in China from four prospects:urban-rural income gap, inter-regional income gap, industry income gap, the incomegap between Government and the people. Further from system factor and thegovernment policy to dig the reasons in income inequality, then puts forward theincome gap will affect the consumption and social stability, eventually hindereconomic growth. Secondly, using the1991-2011provincial panel data and the panelco integration technology to test the existence of long-term stable co-integrationrelationship between the income gap and economic growth of the country, the east, thecentral, the west. Then establishes a panel error correction model to analyze theshort-term relationship between the income gap and economic growth. Finally, basedon the overlapping generations model, introduce the government policies variable,and through the mathematical derivation of the model to prove that incomedistribution inequality negatively correlated with economic growth. Then using thepanel data at the provincial level in China between1997and2007, test the incomegap between the urban and rural areas had a major impact on economic growth. Inshort, using the fact observation, theoretical and empirical analysis, we find that thestatus quo of China’s current income gap is not conducive to sustained economicdevelopment. Thus, according to the previous study, propose three suggestions: First,we should accelerate reform, paying particular attention to urban and rural division ofthe dual economic structure and promoting the reform of the household registrationsystem; Second, deepen the reform of the tax system to reduce regional disparities;Third, increase educational support efforts to improve the quality of labor andemployment capacity, thereby promoting economic growth.