Paper Title
The Role of Financial Development in Consumption Inequality: Evidence from China

Abstract
This paper investigates how financial development intervenes in consumption inequality, especially, Urban-Rural consumption and expenditure disparities in China. Numerous studies over the rising inequality in China are discussed in terms of income. However, if an economic agent can enjoy higher level of consumption than his/her level of earnings through inter-temporal allocation, consumption can be a more relevant or informative variable rather than income like wages and earnings in the analysis of inequality since a basic utility function of economic agent refers to leisure and consumption. Due to the consumption smoothing behavior, financial development is one of important factors to determine the level of consumption inequality. This is because financial development can improve an economic agent’s liquidity, allowing the agent to allocate resources inter-temporally. Based on this idea, provincial level data are employed to fit a spatial panel model, which is frequently used to capture missing variables or non-observable impact in the economic analysis of China. Keywords - Financial Deepening; Urban-Rural Inequalities; Spatial Model; JEL Classification - I30, O40, R12