1. Introduction
Different household consumption patterns reflect different consumption habits and are closely related to household utility. This means that consumption determines not only a household’s economic wellbeing but also its physical and mental health [
1]. Household under-consumption is usually regarded as an obstacle to sustained economic development, particularly in rural China [
2]. China’s consumption rate has been stagnant for a long time and lags behind the global average. During 2000–2020, China’s average consumption rate was 53.94%, well below the global average of 74.40% (for more details, see
Figure 1). Facing the challenges of anti-globalization and COVID-19, China has turned to stimulating domestic consumption, particularly rural household consumption, to achieve common prosperity and sustained economic growth, one of the key goals among the Sustainable Development Goals (SDGs). To achieve this goal, China has proposed the dual circulation strategy, which is domestic-demand-oriented. China’s No. 1 Central Document in 2021 further requires comprehensive promotion in rural consumption, especially in durable consumer goods for rural residents. This will subsequently influence household economic wellbeing and health status at the micro level.
However, it remains unclear why rural households in China are unwilling to consume. This unwillingness has restricted not only the release of China’s consumption potential but also the improvement of household wellbeing and health [
3]. Numerous studies have been conducted to explore the factors restricting rural household consumption. One of the most popular views holds that income plays a key role in promoting consumption [
4,
5]. Existing studies on consumption indicate that both absolute income and relative income are responsible for consumption [
6,
7]. The former translates into consumption increases [
8], while the latter plays a vital role in determining household consumption. Relative deprivation, characterized as “lagging behind the Joneses”, arises from relative income and income inequality and is closely connected to household consumption [
9,
10,
11].
Still challenged by income inequality, China witnessed a national income Gini coefficient of 0.468 in 2020 (Data sources National Bureau of Statistics of China (
http://www.stats.gov.cn. accessed on 10 October 2021)) and a relative poverty rate of 24.39% in 2018, under a poverty line of 60% of median income [
12]. Moreover, the 2018 Report on the Development of China’s Rural Households shows that the Gini coefficient of rural China increased from 0.450 in 2011 to 0.537 in 2017, much higher than the international baseline of 0.4. China’s consequent relative deprivation will definitely affect household economic behavior and consumption, adversely affecting households’ economic wellbeing and health conditions, especially in disadvantaged rural areas. It is therefore imperative to concentrate on the impact and underlying mechanisms of relative deprivation on rural household consumption in China. In addition, household consumption should cover a variety of expenditure sub-categories as well as the total household expenditure.
It has been widely discussed how relative income or income inequality influences household consumption [
13,
14]. Previous research has looked into the inequality-consumption link, along with contributing factors, such as housing price, return to education, social security, as well as sex ratio [
15,
16]. Most of the research is from the macro perspective, despite the fact that micro influencing mechanisms are essential to reveal the underlying logic. Jin et al. (2011) aimed to explore the potential mechanism behind inequality and consumption from the micro perspective. Specifically, Jin et al. (2011) proposed that social status plays an important role in mediating the impact of inequality on household consumption [
17]. Unfortunately, they failed to consider the role of relative deprivation. Different from relative income and income inequality, relative deprivation can capture not only the characteristics of relative income and income inequality but also the features of poverty, especially at the county level [
18]. This study aims to contribute to narrowing the gap in this regard.
Against this background, this article focuses on how relative deprivation, characterized as “lagging behind the Joneses”, influences household consumption in rural China. It stands out from previous studies in the following aspects. First, it supplements the research on the relationship between relative deprivation and household consumption. As stated above, existing literature mostly focuses on relative income or income inequality and household consumption [
15,
19,
20,
21]. Few researchers have investigated relative deprivation on household consumption except Zhang & Pak (2022), but the latter did not cover rural areas [
22]. This article supplements the limited literature on relative deprivation and its impact on household consumption in rural China.
Second, previous studies usually link relative deprivation with conspicuous consumption but fail to further analyze how relative deprivation influences different kinds of household consumption as well as total consumption, which is key for China’s economic transformation. This article enriches current studies with an analysis framework regarding how relative deprivation impacts various kinds of consumption. Then it provides empirical evidence based on five rounds of the CFPS data during 2010–2018.
Third, this study identifies the causal relationship between relative deprivation and household consumption in rural China. The instrumental variable (IV) method is adopted to causally estimate how relative deprivation influences household consumption. Furthermore, causal mediation analysis (CMA) is adopted to address endogeneity while empirically assessing the influencing mechanisms, which were usually ignored before.
Finally, previous studies mostly conducted research on relative deprivation on its own, which rarely reflects the inherent relationship between relative deprivation and household consumption. In this regard, this article further examines county-level relative deprivation, which can not only reduce errors caused by endogeneity but also provide feasible solutions for governments to stimulate county-level consumption.
The remaining parts of this article are organized as follows.
Section 2 presents the theoretical mechanism behind relative deprivation and household consumption.
Section 3 describes the empirical research design.
Section 4 shares the empirical results.
Section 5 sheds some light on policy implications and future research.
Section 6 is a brief conclusion.
5. Discussion
The present study investigates how county-level relative deprivation influences various kinds of household consumption, with data from the CFPS and the China County Statistical Yearbook during 2010–2018. HDFE, IV, and CMA are used to causally test the relationship and mechanisms behind county-level relative deprivation and household consumption.
Relative deprivation is the first to be found that can stimulate survival-oriented consumption represented by expenditures on residence and development-oriented consumption represented by expenditures on healthcare and medical services, though it is revealed that county-level relative deprivation reduces the total household expenditures. Besides, relative deprivation has a negative impact on survival-oriented consumption represented by expenditures on food, development-oriented consumption represented by expenditures on transportation and telecommunication as well as education, and enjoyment-oriented consumption represented by expenditures on durable goods. These findings are consistent with previous studies [
27,
56,
57]. Our study extends current literature on a certain household expenditure to cover household consumption, which includes not only the total expenditure, but also the sub-classified kinds of expenditures on consumption.
Secondly, it is worth noting that county-level relative deprivation increases household consumption on residence and healthcare and medical services through the cognitive trap effect. The cognitive trap caused by relative deprivation induces people to overspend on residence. It is particularly common in rural China, where the “house-building craze” has lasted for a long time. Interestingly, most of the participants involved in this craze work outside and leave their well-decorated houses in the villages [
58]. Besides, irrational consumption decisions on health resulting from relative deprivation makes people underestimate the consequence of mild illnesses, and they are easily caught up in unhealthy habits. These people usually invest inadequately in health and tend to suffer from major illnesses, which are highly expensive. Such consumption patterns are unsustainable, as they damage rural households’ economic wellbeing and health. Moreover, they may squeeze out other kinds of consumption.
The third important finding indicates that relative deprivation reduces household consumption by intensifying the anticipated effect of income uncertainty. This finding is also in line with previous research [
59,
60,
61]. Such research states that relatively deprived people are more likely to suffer economic uncertainty and a subsequent fear of lagging behind, which intensifies precautionary savings and reduces household consumption. The anticipated effect highlights income uncertainty accompanying relative deprivation, which may hamper people’s wellbeing and health.
Our findings have significant policy implications. First, the Chinese government has to address rural relative deprivation at the county level and further release the consumption potential of rural residents. This will not only improve the economic wellbeing and health conditions of the rural households but will also effectively expand domestic demands and promote sustained economic growth. Second, it is necessary to launch cognitive skills training targeted at the relatively deprived groups in rural areas as well as provide economic assistance; with such training, rural households would be less likely to fall into the cognitive trap and could consume reasonably. Third, it is necessary to take advantage of digital finance to support the rural credit market and reduce income uncertainty to ensure smoothing consumption. In addition, it is a matter of urgency to strengthen social security to reduce precautionary savings. More specifically, policy-related housing, education, and healthcare should be targeted at the deprived groups. This can improve their consumption power and willingness and thereby wellbeing and health.
The current research has several limitations which need to be addressed in further studies. First, relative deprivation in this article is one-dimensional and is calculated based on income, which fails to reflect other dimensions. Therefore, it is necessary to carry out relevant research in multiple dimensions, especially those (non-monetary) related to food deprivation (caloric reduction) and food restriction (limited access to some foods). Besides, relative deprivation in wealth will be an interesting topic worth discussing. Second, we have explained the impact of relative deprivation on household consumption through the anticipated effect and cognitive trap effect. Further analysis can be carried out to seek other explanation mechanisms, such as the role of social norms. For example, it would be interesting to assess whether relative deprivation could influence household consumption through social comparison. Finally, future research can focus on the impact of relative deprivation on the weight of expenditure on household income, which differs from expenditure. Moreover, research areas can be extended to cover more urban use cases.