The Influence Of Housing Provident Fund On Household Consumption

Under the circumstance that the consumer demand in our country is insufficient and saving rate is increasing,how to expand household consumption,lower household saving and improve economic performance has surfaced to catch much attention from the government and academia.The implementation of public policies such as Housing Provident Fund system will change the asset allocation of households and influence their consumption and saving decisions.This paper focuses on Housing Provident Fund system.In the first place,this paper theoretically analyzes the impact of Housing Provident Fund system design on household consumption and saving.On one hand,the reduction of individual income tax and cost of housing loans contributes to lower household saving and higher consumption.On the other hand,under borrowing constraints,the restrictions of drawing and using Housing Provident Fund change the optimal asset allocation of urban households and limit current liquidity,causing household consumption and saving deviate from the optimum.Therefore,the effect of Housing Provident Fund on reducing household savings and promoting consumption is weakened.This paper uses CFPS 2010 and 2012 data to empirically analyze the influence of Housing Provident Fund system on household saving and consumption by structuring OLS model and time fixed effect model.The results show that,first of all,Housing Provident Fund enhances urban households consumption and decreases urban households saving as a whole.Secondly,after dividing all households into two groups by whether having self-owned house or not,it is found that Housing Provident Fund only elevates the consumption of households who have self-owned houses,but has no significant effect on the consumption of households who have no self-owned houses.This result means the restrictions of drawing and using Housing Provident Fund cause liquidity constraints on households who have no self-owned houses and distort their consumption and saving behavior.Thus,the effect of Housing Provident Fund on reducing household savings and promoting consumption is weakened or even offset.The Housing Provident Fund system in our country was established on the basis of Singapore system's experience.The Singapore government uses the accumulation of Housing Provident Fund to build a large number of HDB flat and offers housing prices much lower than those on the market.However,in China,the Housing Provident Fund provides no favorable housing price.Faced with rising housing prices,households who have no self-owned houses can't improve their income and wealth condition through the Housing Provident Fund system,so their consumption and saving behavior can't be improved either.Moreover,we take household income into consideration and divide all households into four groups according to their house possessing situation and income level to estimate the effect of Housing Provident Fund on urban households'consumption and saving respectively.The results show that.Housing Provident Fund raises the consumption of households who have self-owned houses and low income and households who have self-owned houses and high income,but has no significant impact on households who have low income and no self-owned houses and households who have high income and no self-owned houses.This result means,the welfare of households who have high income and no self-owned houses can't be improved through Housing Provident Fund system.However,those who can inherit wealth through intergenerational transference can benefit from Housing Provident Fund,such as the reduction of individual income tax and loan interest rate.To sum up,it is found that Housing Provident Fund system is more likely to improve the welfare of high wealth households,but has no significant influence on the welfare of low wealth households.In the future reformation of Housing Provident Fund system,it is advisable to expand the range of application,set more flexible deposit proportion,elevate the upper limit of housing loan using Housing Provident Fund in some cities whose housing price is relatively high and decrease the minimum down payment of housing loan using Housing Provident Fund gradually.In that case,the security function of Housing Provident Fund can be effectively played,which leads to lower household saving,higher household consumption and better economic performance.