New Rural Society Endowment Insurance Program and Household Consumption

This paper evaluates the effect of New Rural Society Endowment Insurance Program (NSEI) on household consumption based on the dataset of The National Fixed-point Survey maintained by the Research Center of Rural Economy, the Ministry of Agriculture. Our empirical research demonstrates that the NSEI can significantly promote consumption. Participation in the program can increase household consumption expenditure by 4%, which means 700 yuan more consumption per household in 2009. The multiplier of the financial expenditure of this program is 1.86 which is much higher than 0.36, the average marginal propensity to consume. What's more, for every doubling of the contribution amount of the new rural insurance, the household consumption expenditure increased by about 5.9%. The mechanism test shows that the program promote consumption through both income effect and anticipation effect especially the latter. In addition, the program has even stronger effect on consumption for households whose heads are older, households whose heads have higher education level and households with lower income.