Research On The Impact Of Household Debt On Income Inequality

Since the execution of open policy,China’s economy has entered the fast lane of rapid development,but with the increasing income inequality.Since the outbreak of the COVID-19 epidemic,a series of social contradictions have emerged in China,whose essence is the social problem caused by income inequality.It can be seen that income inequality has become an important factor affecting economic and social stability.At the same time,since the five priority tasks of “cutting overcapacity,reducing excess inventory,deleveraging,lowering costs,and strengthening areas of weakness” were put forward,the "deleveraging" effect of China’s government departments and enterprise departments has been obvious,but the debt scale of the household sector is still high.High debt may lead to the concentrated outbreak of household debt risk and then lead to serious systemic financial risk.Considering that the household debt and income gap generally show a relatively consistent trend of change,this paper studies the impact of debt on income inequality from the perspective of household micro.Based on the data of China’s household financial survey in 2019,this paper studies the impact of household debt on income inequality and its mechanism.First,in the baseline regression,this paper adopts the RIF-Gini regression model to preliminarily explore the impact of household debt on income inequality and conducts robustness tests.Secondly,the heterogeneity analysis of different regions and different types of income inequality is carried out to study the difference of the effect of household debt on income inequality.Finally,unconditional quantile regression is used to explore the impact of household debt on different income subpoints,and the ordered probit model is used to verify whether credit constraint is the channel of household debt affecting income inequality.The findings are as follows: First,household debt has a significant effect on income inequality,and this conclusion is still valid after a series of robustness tests.Second,household debt increases the income of middle-and upper-income households and reduces the income of low-income households.Third,household debt exacerbates income inequality by increasing credit constraints.Fourth,the widening effect of household debt on income inequality is more obvious in the eastern region than in the central and western regions.Fifth,household debt has an aggravating effect on wage income inequality,business income inequality and property income inequality,but has no significant effect on transfer income inequality.The conclusion of this paper provides a new theoretical basis for preventing the risk of household sector debt and a new analytical perspective for alleviating income inequality and realizing common prosperity.The 14 th Five-Year Plan and the 2035 Vision Plan attach great importance to common prosperity,and the first prerequisite for achieving common prosperity is to reduce or even eliminate income inequality.Therefore,it is urgent to alleviate income inequality.Based on the research conclusions,this paper puts forward some suggestions on preventing and defusing financial risks and alleviating income inequality.On the one hand,it is necessary for the government to pay enough attention to the household sector debt risk when the scale of household debt remains high at this stage.On the other hand,we should strengthen the social security of middle-and low-income families in medical care and education.More sophisticated financial inclusion policies targeted at different middle and low-income households will help increase their household income,thus reducing income inequality and taking solid steps toward common prosperity.