Financial Availability, Income Gap and Household Consumption Rate in Transitional China: A Theoretical Approach and Empirical Test

Abstract

Based on the characteristics of financial exclusion and income gap, this paper attempted to elucidate the fluctuation of China’s consumption rate through the mechanism of financial availability of low-income residents and its influence on household consumption in the reform era. The study showed that improving financial availability affects the consumption rate by increasing investment opportunities for low-income earners who can adjust the portfolio of composition. Meanwhile, this effect is affected by the income gap which plays a “threshold” role in the relationship between financial availability and consumption rate. Therefore, inclusive finance development must be adapted to economic development in order to prevent “too much finance”.

How digital finance affects income distribution: Evidence from 280 cities in China

“…The study found that the implementation and development of regional digital finance can significantly increase the income level of residents. [ 23 ] used panel data at the provincial level in China from 2011–2015 and confirmed through an econometric model that the current digital inclusive finance in China has positive implications for narrowing the income gap between urban and rural areas within regions [ 3 ] compiled relevant data for China during 2004–2014 and applied the VECM model to find that digital financial development can effectively promote intra-regional inclusive finance in China. The increasing level of inclusive financial development has contributed significantly to balanced income distribution in China [ 22 , 27 ] argue that the digitalization of traditional industries only benefits the wealthy class in the industry, which will lead to more significant class differentiation [ 28 ] suggest that the "digital divide" between countries and regions around the world is a challenge that governments at all levels must face as digital technologies continue to evolve [ 29 ] explored the impact of digital technology on income inequality among residents of 54 countries from 2010 to 2015 and showed that financialization and digital technology widened the gap in income inequality.…”

“…Compared with existing studies, this paper may have the following innovations: most of the existing literature on digital finance and income distribution discusses the linear relationship between the two, with the majority of such literature being representative [ 3 , 4 , 20 , 21 ], which have explored whether digital financial development is conducive to raising local income levels and whether there is heterogeneity in the extent to which income levels are raised [ 10 , 22 , 23 ]. In contrast, some representative literature advocates another view that the relationship between digital finance development and income distribution may have non-linear characteristics, which is less represented in the literature [ 8 , 10 ], where they use threshold effect analysis to explore whether there is a threshold value for digital finance to be helpful in raising residents’ income, who used threshold effects analysis to explore whether there is a threshold for digital finance to contribute to higher income.…”