Ask an Economist
Question:
The Chinese government recently added a tax on imported luxury cars. My question is why "extravagant spending by the elite is politically dangerous at a time of slowing economic growth"?
Answer:
Although China has had a spectacular economic growth in the last three decades, income/wealth inequality has been rising over time. It would not be a big problem as long as the high growth of economy can be sustained. This is because most people will experience or can hope for a rising living standard associated with high economic growth. However, when economy growth slows down, this expectation collapses. As a result, people will become more and more unsatisfied with inequality, which causes political instability.
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