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Under-consumption, trade surplus, and income inequality in China

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  • Chan, Kenneth S.
  • Dang, Vinh Q.T.
  • Li, Tingting
  • So, Jacky Y.C.

Abstract

It has recently been shown that rising income inequality had contributed to increase in savings of the rich and decrease in consumption of the poor, pressuring politicians to permit cheap loans for the poor from the rich. The resultant lending boom created a massive run-up in the housing prices and ensuing mortgage crisis in the US. In China, capital markets are underdeveloped and the poor may not be able to borrow from the rich. Employing Chinese provincial panel data and a variety of estimators, we find that rising income inequality significantly lowers consumption and, consequently, raises China's current account surplus.

Suggested Citation

  • Chan, Kenneth S. & Dang, Vinh Q.T. & Li, Tingting & So, Jacky Y.C., 2016. "Under-consumption, trade surplus, and income inequality in China," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 241-256.
    • Handle: RePEc:eee:reveco:v:43:y:2016:i:c:p:241-256
    DOI: 10.1016/j.iref.2016.02.013
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    Cited by:

    1. Sarah Chan, 2019. "China’s Narrowing Current Account Surplus: Evolving Trends and Policy Implications," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 3, pages 345-359, September.
    2. Manger, Mark S. & Matthews, J. Scott, 2021. "Knowing when to splurge: Precautionary saving and Chinese-Canadians," Journal of Asian Economics, Elsevier, vol. 76(C).
    3. Fuqiang Dai & Hao Liu & Xia Zhang & Qing Li, 2022. "Does the Equalization of Public Services Effect Regional Disparities in the Ratio of Investment to Consumption? Evidence From Provincial Level in China," SAGE Open, , vol. 12(1), pages 21582440221, March.
    4. Lee, Chien-Chiang & Xing, Wenwu & Lee, Chi-Chuan, 2022. "The impact of energy security on income inequality: The key role of economic development," Energy, Elsevier, vol. 248(C).
    5. Metzger, Martina & Young, Brigitte, 2020. "No gender please, we're central bankers: Distributional impacts of quantitative easing," IPE Working Papers 136/2020, Berlin School of Economics and Law, Institute for International Political Economy (IPE).

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    More about this item

    Keywords

    Income inequality; Under-consumption; Trade surplus; China;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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