An Empirical Research In The Effect Of Credit Constraint On China Household Consumption

The permanent income hypothesis (PIH) thought that families through intertemporal assets allocation to maximize long-term utilities.Households’ consumptions decision are depended on the permanent income.But this theory are unconsitant with the empirical conclusions.A possibly explanation is that credit constraints makes consumption be sensitive to currency incomes. Credit constraint affects household’s consumption behaviors in two ways:on the one hand, credit constraint makes the family is difficult to realize resource intertemporal allocation.Qn the other hand, credit constraints added to the family the future uncertain factors. A strict credit constraint means that family can’t smooth them consumption when they meet with a suddenly negative impact. In order to avoid the negative effect family prefer to increasing savings.Under this background, this paper attempts to answer two questions through empirical analysis of credit constraints influence on family consumption in Chinese households samples.First of all,we attempt to analysis who is credit constrained in Chinese households,namely,what is the influence factors of credit constraints in China. Secondly,how does credit constraint affect households’ consumption.For the first question, we use the binary of discrete choice model-Probit model to analyze the influencing factors of family credit constraints in china. Considering the life cycle characteristics of family and the typical binary economic characteristics of China,we further to classify our samples into some subsamples and estimate them again.Empirical results shows that, lower income, lower net wealth, no housing, family heads has informal work, rural registered permanent residence, older Chinese families have a greater probability of credit constraint.Heckman sample selection model estimation results show that, the inverse Mills ratio that calculated from the Probit equation have a significant effection on the second stage estimation.It means that sample selection problems does exist. The residuals correlation coefficient of two equations is0.08, namely, unoberserved factors in the first stage equation has a positive effect on consumption. After controlling for other factors, compared with the unconstraints families,credit constraint lead the constrained family to consume lesser.Subsamples estimation coefficients indicated that, after controlling for other variables, households which has informal credit channels’consumptions are more sensitive to the change of net wealth,housing,income.Finanly,we also estimated the constrainted family’s desire consumption.The constrained households’average desire consumption is32,529.7yuan, it means that this type households are only consume79.68%of their desire consumption.If the credit constraint was relaxed, the average consumption of each family in the sample will be increased by4percentage points. Credit constraint relaxion will significantly improve households’consumption utility.