Insufficient Consumption Demand of Chinese Urban Residents: An Explanation of the Consumption Structure Effect from Income Distribution Change

Peng Su, Xiaochun Jiang, Chengbo Yang, Ting Wang and Xing Feng
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Peng Su: School of Management, China University of Mining and Technology, Xuzhou 221116, China
Xiaochun Jiang: Center for Quantitative Economies, Jilin University, Changchun 130012, China
Chengbo Yang: Mathematics school of Jilin University, Jilin University, Changchun 130012, China
Ting Wang: Economics school of Jilin University, Jilin University, Changchun 130012, China
Xing Feng: Business school of Jilin University, Jilin University, Changchun 130012, China

Sustainability, 2019, vol. 11, issue 4, 1-22

Abstract: China’s consumption rate has continued to decline since 2000, which has retarded the sustainable growth of China’s economy. The dramatic changes in China’s income distribution have been very significant social characteristics, and they are also a very important factor for consumption. Therefore, this study analyzes the problem of insufficient domestic demand from the perspective of the effects of the income distribution changes on the consumption structure. The Almost Ideal Demand System model is improved by relaxing its assumption that expenditure equals income and giving it a dynamic form that includes the three characteristics of the income distribution evolution (the mean, variance, and residual effects) and measuring these. The results show that the mean effect is the largest one, and it basically determines the size and direction of the total effect. The variance effect is much smaller, but it may have some positive effects on the individual markets. The residual effect is the smallest and has a certain randomness. The income gap is not the main cause of the insufficient domestic demand. It is more likely to be caused by the decline of the mean effect, and the main driver of this is the irrationality of the supply side and excessive housing prices.

Keywords: insufficient demand; income distribution change; demand structure effects; AIDS model; counterfactual decomposition (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:11:y:2019:i:4:p:984-:d:205921

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