Financing Constraints, the Decline of Labor’s Share and China’s Low Consumption
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| Title | Financing Constraints, the Decline of Labor’s Share and China’s Low Consumption
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| Author | Wang Wei, Guo Xinqiang and Ai Chunrong |
| Organization | Institute of Finance and Economics and Research, Shanghai University of Finance and Economics; China Zheshang Bank; School of Statistics, Shanghai University of Finance and Economics |
| Email | wangwei2@mail.shufe.edu.cn; |
| Key Words | Financing Constraints; Labor’s Share; Consumption; State-owned Financial Support |
| Abstract | Based on the macro facts that the co-movements of the tightened borrowing constraints on medium-small private firms, the declining trend of labor’s share and consumption rate in national income. This paper sets up and calibrates a dynamic general equilibrium model consisting of state-owned firms and medium-small private firms, which face borrowing constraints and investment distortion to explore the above phenomenon. This paper sheds light on the following macro story: since the mid-1990s, the change of China’s financial environment tightened borrowing constraints on firms. To alleviate the persistent and rising difficulty to obtain financing, the medium-small private firms have sought to self insure through retaining profits as internal savings, hence decrease the profits distribution to households and lower the labor’s share. The dominance of state-owned bank structure of financial ownership not only have restrained the development of financial market, but also formed the financing constraints on private firms through the government guidance to bank lending. In the face of a declining household income share, rational consumers choose consumption in a manner that is consistent with a falling share of consumption in GDP, as evident in the data. |
| Serial Number | WP477 |
| Time | 2013-06-26 |
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