Abstract

The problem of insufficient consumption of residents has always been apparent, and weak consumption has become the core problem affecting economic growth. Among the many factors constraining the consumption development, the income distribution structure has received relatively little attention. Most of the studies discuss effective ways to crack the blockage of consumption from the perspectives of consumption capability and willingness. In fact, the restructuring of society has also had a significant effect on the consumption development. Among the different income groups, the middle-income group is the backbone for stabilizing consumer demand. Therefore, the normative assessment of the effect of middle-income groups on consumption is of great significance for policy formulation that synergizes the strategy of common prosperity and the expansion of domestic demand. Issues such as the relationship between the size of the middle-income group and residents’ consumption, and ways to expand the middle-income group for effective promotion of consumption need more adequate theoretical analysis and quantitative evidence.
Based on the data of China Family Panel Survey (CFPS), the LDMI method is used to decompose the consumption level of the population into the combined effects of group size, consumption capability and consumption willingness. The Gini coefficient of consumption is further measured based on the concept of relative deprivation, using subgroup decomposition techniques to decompose it into the combined effects of group size, consumption shares, and localized inequality. The statistical index system of consumption level and consumption inequality is thus constructed, and factor analysis is carried out to empirically investigate the effect of expanding the size of middle-income groups on consumption. Finally, based on the quantitative relationship between group size and consumption and the realistic path of expanding the middle-income group, simulation analyses are carried out to examine the comprehensive consumption effect of expanding the middle-income group under different scenarios, with a view to providing references for the design of consumption development policies in the context of common prosperity.
It is shown that the increase in the size of the middle-income group is effective in reducing consumption inequality, but the impact on the consumption level is subject to uncertainty. Holding the income stock constant, the expansion of the middle-income group has a significant “double-edged sword” effect on consumption, with a reduction in consumption inequality coming at the cost of a reduction in the consumption level. If distributional restructuring is combined with income growth, in the sense of expanding the middle-income group under the “expanding increment” scenario, a win-win situation can be achieved in terms of increasing consumption levels and decreasing consumption inequality. If the income distribution structure reaches a size of 3:6:1 for the low-, middle- and high-income group under this scenario, the consumption level will increase by about 71.30% based on 2019, and the consumption inequality will decrease by about 12.75%.
The findings of this paper analyze the comprehensive impact of expanding the middle-income group on consumption in different scenarios and help to provide support for policymaking related to integrating income distribution and consumption development.