Can Digital Finance Unleash the Potential for Household Consumption? A Comparison Based on the Inconsistency Between Income and Consumption Classes

Abstract

The high savings propensity of households has led to inconsistencies between income and consumption classes in China. The issue of unleashing the consumption potential of households arouses public concern. This paper explores the effect of digital finance DF on unleashing the consumption potential of households from the perspective of household consumption habits. By examining the inconsistency between income and consumption classes, the findings reveal that households in China have substantial untapped consumption potential, and that prioritizing household consumption potential is a more effective approach to stimulating consumption. The mechanism analysis shows that DF facilitates consumption growth through both reducing time costs and precautionary savings, as well as easing credit and liquidity constraints. Notably, these effects are more pronounced in underconsumption households compared to equal-consumption households.