 The role of financial systems for cross-country differences in the link between income and consumption inequalityXinhua Gu, Yang Zhang and Xiao Chang Applied Economics, 2017, vol. 49, issue 24, 2365-2378 Abstract: This article discusses why consumption inequality stays low despite high income inequality in the U.S; but income inequality is closely followed by consumption inequality in China. We show that different financial systems can play a critical role in shaping the cross-country different links between income and consumption inequality. This phenomenon is consistent with the cross-country different relationships between income inequality and saving rates. Consumer credit expansion in the U.S. makes inequality much less serious for consumption than for income, and this result holds to an even larger extent if more domestic credit can be financed by foreign savings. But this is not the case in China, whose financial system focuses only on investment and trade while neglecting liquidity constraints on consumption. Our assertions accord well with evidence found from the U.S., China, and other related economies. Date: 2017 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:49:y:2017:i:24:p:2365-2378 Ordering information: This journal article can be ordered from DOI: 10.1080/00036846.2016.1240338 Access Statistics for this article Applied Economics is currently edited by Anita Phillips More articles in Applied Economics from Taylor & Francis Journals |
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