Does income diversity really stimulate household consumption expenditure diversity? Evidence from mean-based and unconditional quantile regressions

ABSTRACT

Although both income diversity and household consumption expenditure diversity are positively correlated with income, little is known about how the former affects the latter. This study investigates how and to what extent income diversity stimulates household consumption expenditure diversity, utilizing data collected by the China Social Survey. We estimate a standard mean-based linear regression model and an unconditional quantile regression (UQR) model to explore mean-based and quantile-specific effects, respectively. The results of the linear regression show that income diversity significantly increases household consumption expenditure diversity. The UQR estimates provide more granular insights, revealing that income diversity improves consumption expenditure diversity at the lower quantiles (5^th and 25^th), with the largest effect occurring at the lowest 5^th quantile; for the higher quantiles, income diversity has no effect on consumption expenditure diversity. Our findings highlight that policies aimed at improving consumption expenditure diversity and the quality of life of people in China should create an economic environment that allows people to diversify their income sources. From a methodological standpoint, we show that mean-based approaches may overlook the finer details of the linkages between income and consumption and thus should be applied cautiously.

KEYWORDS:

• Income diversity
• expenditure diversitxpenditure diversity
• UQR
• China

JEL CLASSIFICATION:

• C21
• P36
• M14
• E21

Acknowledgment

Xiaoshi Zhou acknowledges the financial support from the National Natural Science Foundation of China (No. 72003089).

Disclosure statement

No potential conflict of interest was reported by the authors.

Data availability statement

The data that support the findings of this study are available from Xiaoshi Zhou upon reasonable request.