Income Uncertainty and Consumer Demand among Rural Residents Analysis Based on Optimisation of Household Consumption Utility

Abstract

As China enters a new era, the role of consumption as a driving force for the economy has become increasingly prominent. The consumption of rural residents is not only a matter of high-quality economic development but also an important part of realizing people’s aspirations for a better life. This study contributes to the literature by establishing an econometric model based on the construction of a theoretical model for optimizing the utility of household consumption, using panel data from China’s 31 provinces, eliminating endogenesis by using instrumental variables, taking $2SLS$ and dynamic $GMM$ . The results show that the relationship between income uncertainty and rural residents’ consumption varies in the same direction, stimulating consumption when real income exceeds psychological income and reducing consumption when real income does not reach psychological income. The quantile model shows that income uncertainty has a greater impact on the middle-high-consumption groups and a smaller impact on the lower-income groups.