Measures the potential for household consumption: a comparison based on inconsistencies between income and consumption classes

Class division is often based on factors such as income, occupation, education, or consumption, but different definitions can lead to different conclusions, particularly regarding the inconsistency between income and consumption classes. This article uses the Expectation-Maximization (EM) algorithm to measure the consumption potential of households in China. First, this article categorizes income and consumption classes, identifying households with consumption habits indicative of potential based on a consumption level at least equal to their income. Second, by comparing household consumption potential with Marginal Propensity to Consume (MPC) and considering consumption structures, we explore the consumption paths of different income classes. Finally, policy implications are proposed to promote the release of household consumption potential.