An Analysis Of The Impact Of Chinese Urban Residents' Income Distribution On Consumption

In recent years the consumption provides an insignificant impetus to the growth of economy. The domestic demand has not been stimulated against the backdrop of putting the emphasis on fostering new consumption growth point. Meanwhile, the unequal distribution of income has become worse. Is there any co-relation between insufficient consumption and increasing income disparity? This paper, from the perspective of Chinese urban residents, gives an empirical study on this topic.Firstly, the trends of income inequality and consumption demand after reform and opening-up have been analyzed. With a rapid increasing in residents' disposable income, the widening income gap and the decline of average propensity to consume occur at the same time.Then, this paper empirically tests the relation of Chinese urban residents' average propensity to consume and the Gini Coefficient using panel data of 18 provinces from 1992 to 2013.The results show a negative relation, which means that widening the income gap could decrease aggregate consumption of urban inhabitants in China. Furthermore, based on the AIDS model, the paper systematically analyzes consumption behavior of urban residents of different income groups and finds the consumption potential can be improved from household equipment, transportation and communication, education and entertainment.Finally, some policy proposals have been raised according to results as follows: on one hand, promoting consumption demand through narrowing income disparities, on the other hand proposing pertinent solutions on the basis of consumption potential.