The Impact Of Inflation On The Income Gap Between Urban And Rural Residents Under The Background Of The Financial Development

After the reform, China has repeatedly experienced a significant reduction in inflation, which will cause urban and rural residents relative income levels change, the economic burden of the residents of housing, health care, education is heavier, the social security system is not yet perfect, which increases uncertainty of the income and expenditure to some extent. China’s total income levels rises rapidly, while the income gap between urban and rural residents is also expanding, inflation and income distribution gap between urban and rural had affected the rapid development of China’s national economic and social prosperity and stability, and in some extent, they have become obstacles to China’s reform and development. However, the current social security system in China is still not perfect, especially in urban and rural social security system,there are significant differences between urban and rural, inflation makes distribution of income more unequal and lead to wealth, polarization and social conflicts. Therefore, in-depth study of the impact of inflation on the income gap between urban and rural residents and to solve this problem, not only conducive to China’s economic development, as well as conducive to social harmony and stability.In times of inflation, inflation has " robbing the poor to the rich," the redistributive effects, but people can resist the negative effects of inflation by using a variety of tools in the financial markets, however, the different circumvention means to circumvent the effect between high-income groups of urban and rural low-income groups may have different effects. For a long time, China’s financial market is not yet developed, and rural finance has significant dualistic characteristics namely urban and rural residents that enjoy financial services are different:on the one hand, the total stock of financial assets, especially in per capita the total amount of financial assets which residents possessed have a clear difference compared with urban residents; on the other hand, the rural financial products and service project are single, rural investment channels are less. Due to the underdeveloped financial circumstances different income groups have different effects against inflation, financial markets, investment instruments and tools to a certain extent, wealth, income level and other urban and rural residents made requests. So under the background of the financial threshold analyse the impact of inflation on income gap between urban and rural residents relationship, allow people to understand clearly the relationship between inflation and urban-rural income gap under the background of the financial development. In this paper, we adopt theoretical analysis and empirical research methods. Firstly, by constructing the mathematical model from view of the financial development, analyses financial market effects on the relationship between China’s inflation and the income gap between urban and rural residents,it shows:China’s financial markets are underdeveloped in the realistic background, it will form a financial threshold to avoid the inflation, the financial threshold to lower the effects for rural residents to avoid inflation, expand the urban-rural income gap. In the empirical analysis, the income gap between urban and rural residents is interpreted as a variable, inflation rate, the level of financial development, non-equilibrium level of financial development between urban and rural as key explanatory variable, openness and level of urbanization as a control variables. By empirical findings:inflation and the income gap between urban and rural residents exists a long-term stable equilibrium, and CPI inflation, the level of financial development and non-equilibrium level of financial development between urban and rural Granger cause urban-rural income gap, which means that under the state of underdeveloped financial markets, inflation and rising levels of financial development and non-equilibrium level of financial development between urban and rural will largely increase the urban-rural income gap, and finally the actual situation of China is in accordance with the results of theoretical and empirical analysis, in order to narrow the income gap between urban and rural residents, we must first control price at a low level, avoid inflation rise too quickly over the land, and secondly to solve the level of financial development and constantly improve the problem of non-financial balance between urban and rural development, we can take measures through the improvement of rural financial service system,the construction of rural financial institutions and social security system to narrow the income gap between urban and rural residents.The main innovation of this paper is divided into three parts:firstly, the innovation of research perspective. From the domestic and foreign research, they only discuss the impact of inflation or the financial development on urban and rural residents’income gap, but they ignore the existence of financial development will have some impact on the relationship between them, and in this respect related literature is very scarce, we choose the background of the financial development on how to study the impact of inflation, the income gap between urban and rural residents, combined with the background of China’s underdeveloped financial markets, more in-depth, thorough analysis concludes with policy recommendations. Secondly, innovative research methods. Most domestic articles about the impact of inflation on the income gap between urban and rural are qualitative study, instead of quantitative research, and by constructing the mathematical model, and the use of empirical econometric analysis method,it can make people understand the relationship between these variables more deeply and thoroughly. Thirdly, the study variables are more abundant, domestic inflation related to the income gap between urban and rural residents of the affected articles less horizontal non-balanced development of urban and rural finance as the key explanatory variable, and this paper takes into account the greater impact on the income gap between urban and rural areas variable, also joined two other important control variable, making the empirical research more rigorous.