How Aging and Intergeneration Disparity Influence Consumption Inequality in China

Concurrent with market economic reforms, China is facing an increasing income gap and an aging population. The question addressed in the present paper is how much aging contributes to the rising disparity in consumption. Based on the model established by Ohtake and Saito (1998), our study shows that cohort effects contribute close to 60 percent of the rising consumption inequality, while approximately 10 percent is the result of aging. The growth of aggregate consumption inequality caused by the cohort effect has various implications. Strengthening the redistribution system, especially the tax system, may enable the economy to avoid further increases in income inequality.