Income Distribution,Human Capital and Structural Transformation
Chinese modernization is the modernization of common prosperity for all.To achieve goals of both efficiency and equality during China's new development stage,we need to deeply understand the relationship between the evolution of income distribution and structural transformation.The so-called Kuznets curve and Kuznets facts have presented the stylized facts on the evolution of income distribution and the process of structural transformation,respectively.As a country's per capita income grows,inequality tends to rise before declining.Moreover,the share of agriculture decreases and the share of services increases constantly,while the share of manufacturing experiences a hump-shaped development path.China has undergone a similar pattern since the reform and opening up,with its trends more salient than those of many countries.With cross-country data from 1960 to 2017,we further find that countries with greater inequality have a smaller manufacturing sector and a larger service sector.However,the relationship between the evolution of income distribution and the process of structural transformation has been largely overlooked in the literature,especially about how inequality affects industrial structure.This study investigates the effects of income distribution on structural transformation through the lens of the income effect theory.The income effect theory highlights the role of income growth caused by either technological change or capital deepening in changing the relative demand for sectoral outputs and thus driving structural change.The key mechanism underlying it is that the income elasticities of demand for goods produced by different sectors are different.It also implies that for people with different levels of income,their consumption structures are different,so the sectoral composition of aggregate consumption may be affected by how incomes are distributed among people.This offers a novel perspective to understand the relationship between income distribution and structural transformation.We then present a multi-sector dynamic general equilibrium model with human capital heterogeneity to study the effects of income distribution on structural transformation.We introduce the almost ideal demand system into the model to characterize the preference and consumption structure.We find that in the short run,inequality affects structural transformation by changing the sectoral composition of consumption,with the direction of the effect depending on the income elasticities of demand for sectoral outputs.In the medium run,inequality can also affect structural transformation through the mechanisms of income level and distribution.It is not only the income elasticity of demand that matters for the direction of the effect but also the intergenerational correlation of human capital does.In the long run,shocks to income growth shape the steady-state income distribution,which determines the industrial structure.The larger the magnitudes of the shocks,the higher the inequality,but how the industrial structure changes accordingly also hinges on the income elasticity of demand.To quantitively investigate the importance of the above mechanisms,we further estimate the income elasticity of demand for services with data on Chinese households.The results indicate that the elasticity is significantly and robustly larger than one.With the estimation results,we quantify the effects of inequality on the share of services by simulating the model in the short,medium,and long runs.We find that the effects of inequality on structural transformation are consistently prominent under different circumstances.The policy implication from the conclusions is that as the principal contradiction in Chinese society during the new era has changed,the government should pay more attention to improving income distribution and promoting common prosperity,as well as accelerating human capital accumulation and consumption structure upgrade for low-income households.The implementation of the strategy to expand domestic demand can be well integrated with the efforts to deepen supply-side structural reform.We further derive policy suggestions from this perspective for China to effectively promote structural transformation and high-quality development.
万方数据
维普
