An Empirical Study on the Consumption Effect of Income Gap among Industries

On the basis of logic analysis, using macro-statistical data, this paper makes an empirical study on the consumption effect of income gap among industries by some measurement method, such as unit root test, VAR model estimation and Granger causality test and so on. The results show that the income gap among industries has a negative effect on the resident consumption rate. The contribution of the income gap among industries to the change of the resident consumption rate presents the trend of decreasing first and then increasing. Keywords—income gap among industries; consumption effect; consumption rate I. LOGICAL ANALYSIS OF THE RELATIONSHIP BETWEEN INCOME GAP AMONG INDUSTRIES AND CONSUMPTION The consumption and income of the residents interact with each other. The consumption is affected by income, at the same time affects the increase or decrease of the income. Resident consumption refers to all the consumer expenditure of final commodity and service, some related factors such as consumer income and commodity prices are recognized as the consumption determinants. Many economists at home and abroad are studying the theory of consumption, which is the key theory concerned by economics. The Keynes’s Hypothesis of Absolute Income is the most representative hypothesis. The Modigliani’s Life Cycle Hypothesis is also the most influential hypothesis. A. The Hypothesis of Absolute Income In 1936, the absolute income hypothesis consumption function was first put forward by Keynes in The General Theory of Employment, Interest, and Money. The center of this assumption is that the consumption is mainly affected by the level of absolute income and the diminishing marginal propensity to consumption. Consumption depends on income, the relationship between consumption and income is called the propensity to consume. Consumption increases with the increase of income, but its growth rate is lower than the growth of income, the proportion of consumption increment in the income increment decreases, named diminishing marginal propensity to consume. The marginal propensity to consume is less than the average propensity to consume. B. Life Cycle Hypothesis Modigliani and Blumberg put forward the life cycle hypothesis in the "utility analysis and consumption function an explanation of the cross-sectional data". The hypothesis considers that a person will be based on the expected income of life to reasonably arrange the consumption and savings in various period of life, to reach the revenue and expenditure balance, and not according to the current income to determine the current expenditure. The two preconditions of this hypothesis are: consumers are rational, and can be reasonable consumption by according to their own income; utility maximization is the only goal of consumer behavior. The consumption and saving behavior of rational consumers at a certain point of time is determined by their ideal distribution of consumption in each life cycle phase in order to achieve maximize the utility maximization during the whole life. II. DATA SOURCES AND VARIABLES SETTING Based on the analysis of the theoretical relationship between the income gap among industries and resident consumption, this paper validate the effect of the income gap among industries on the resident consumption from a quantitative point of view. Therefore, firstly, the definition of the variables is required for quantitative analysis; Secondly, on the premise of theoretic analysis, the data of the relevant variables are collected for quantitative analysis and the VAR model is estimated. Finally, based on the VAR model estimates of the income gap among industries to the resident consumption, this paper further estimate whether there is a causal relationship between the income gap among industries and resident consumption. 136 2016 International Seminar on Education, Innovation and Economic Management (SEIEM 2016) Copyright © 2016, the Authors. Published by Atlantis Press. This is an open access article under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/). Advances in Social Science, Education and Humanities Research (ASSEHR), volume 75