| Summary/Abstract |
In this paper, we investigate the effect of digital nancial inclusion (DFI) on household consumption smoothing in China. We use four waves of the biennial China Family Panel Studies from 2010 to 2016, during which time DFI has signicantly developed alongside nancial technology across China. We split household income shocks into permanent and transitory components, and evaluate if DFI may help households to buffer against these shocks. We nd that households are not able to insure against permanent shocks to income, but they can smooth approximately 70 percent of transitory shocks to income. We also find that DFI has diminished households’ ability to insure against transitory income shocks. This is partly because online purchase may lead to the oversensitivity of consumption to income. In addition, we nd that contrary to DFI, traditional nancial sector development contributes to better household consumption smoothing against transitory income shocks
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