The Study Of The Impact Of Chinese Income Inequality On Macroeconomic Volatility

Since the reform and opening up, China’s economic has made brilliant achievements, but it’s in constant volatility, and shows a growth oriented economic volatility. At the same time, the trend of gradually widening gap in income distribution is also very obvious. Is there any intrinsic link between income inequality and economic volatility? How the role of both the internal mechanism? What effective policies should be took to maintain the long-term sustainable and healthy development of China’s economy? These issues were been comprehensively researched in this paper.First, the paper analysis the situation on income inequality and economic volatility in our country, it arrives at a conclusion that income inequality is very common and is increasing. Meanwhile, the degree of macroeconomic Volatility in our country is increasing. The gap between GDP and potential GDP is expanding; generally speaking, China’s macroeconomics is a kind of growing oriented economic volatility. And then makes research on the mechanism of how income inequality influences macroeconomics. After studying numerous literatures, it summarizes four main impact pathways, which are imperfect capital market, political economy, social politics and consumer demand. Then the paper performs empirical analysis to the impact of income inequality to economic volatility and finds that income inequality, social investment, social instability and the degree of opening up have positive effect on economic volatility, credit market, effective demand and government expenditure have negative effect. In general, income inequality will promote economic volatility and income inequality is Grainger reason of economic volatility. Finally, the paper offers a proposal on reduce income inequality and stable economic growth from the point of view that sound income distribution system should be established and economic development ways should be changed.