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Does Digital Finance Upgrade Trickle-down consumption effect in China?

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  • Zhou, Xianbo
  • Sun, Yucheng
  • Tao, Ying

Abstract

This paper investigates the trickle-down consumption effect and the moderating effect of digital finance in China. Three realistic patterns motivate this study; trickle-down consumption has been confirmed in many developed countries, digital finance facilitates household consumption, and China exhibits income inequality across regions. Using data from the 2017 and 2019 China Household Finance Survey, we find that Chinese households exhibit trickle-down consumption behavior and that digital finance development moderates the trickle-down consumption; this moderating effect is somewhat heterogeneous by year, geographic location, hukou, and household income. The mechanism analysis results confirm that the relaxation of liquidity constraints is the primary channel through which our positive moderating effect operates. Our findings are robust to various tests, and alternative specifications are also discussed. Some policies are suggested to alleviate consumption inequality by developing digital finance and stimulating a natural pattern of trickle-down consumption in China.

Suggested Citation

  • Zhou, Xianbo & Sun, Yucheng & Tao, Ying, 2023. "Does Digital Finance Upgrade Trickle-down consumption effect in China?," Economic Modelling, Elsevier, vol. 118(C).
    • Handle: RePEc:eee:ecmode:v:118:y:2023:i:c:s0264999322003406
    DOI: 10.1016/j.econmod.2022.106103
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    Cited by:

    1. Hu, Debao & Zhai, Chenzhe & Zhao, Sibo, 2023. "Does digital finance promote household consumption upgrading? An analysis based on data from the China family panel studies," Economic Modelling, Elsevier, vol. 125(C).
    2. Dong Guo & Lin Li & Lu Qiao & Fengyu Qi, 2023. "Digital economy and consumption upgrading: scale effect or structure effect?," Economic Change and Restructuring, Springer, vol. 56(6), pages 4713-4744, December.
    3. Jian Zhu & Zifang Li & Hui Wang, 2023. "Internet Development and Urban–Rural Consumption Inequality: Evidence from Chinese Cities," Sustainability, MDPI, vol. 15(12), pages 1-15, June.
    4. Zhang, Xiaoyan & Li, Jinbao & Xiang, Dong & Worthington, Andrew C., 2023. "Digitalization, financial inclusion, and small and medium-sized enterprise financing: Evidence from China," Economic Modelling, Elsevier, vol. 126(C).
    5. Qianqian Li & Qilin Liu, 2023. "Impact of Digital Financial Inclusion on Residents’ Income and Income Structure," Sustainability, MDPI, vol. 15(3), pages 1-20, January.

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    More about this item

    Keywords

    Digital finance; Trickle-down consumption; Moderating effect; China;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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