The Impact of Factor Price Distortion on China's Investment and Consumption Structure

Insufficient domestic demand and investment and consumption structure characterized by excessive investment are important issues faced by China's macro-economy.The micro-level factor price distortion influences investment and consumption via price mechanism,which is the underlying reason for the change of investment and consumption structure.Based on the modified Ramsey-Cass-Koopmans model,this paper provides an explanation framework for the fact of China's long-term stable economic development in transition period with high investment and low consumption from the perspective of factor price distortion,and estimates the impact of factor price distortion on the change of China's investment and consumption structure.Conclusions show that the negative distortions of capital and labor prices can stimulate investment and reduce consumption,but the effect of labor price distortion is more significant;if the distortion of labor price is more serious than capital price,the investment and consumption structure will not get improved well.