China's Income Distribution Over Time: Reasons for Rising Inequality

Abstract:     
We use a new method to estimate China's income distributions using publicly available interval summary statistics from China's national household survey. We examine rural, urban, and overall income distributions for each year from 1985-2001. By estimating the entire distributions, we can show how the distributions change directly as well as examine trends in traditional welfare indices. We find that inequality has increased substantially in both rural and urban areas. Using an inter-temporal decomposition of aggregate inequality, we determine that increases in inequality within the rural and urban sectors and the growing rural-urban income gap have been equally responsible for the growth in overall inequality over the last two decades. However, the rural-urban gap has played an increasingly important role in recent years. In contrast, only the growth of inequality within rural and urban areas is responsible for the increase in inequality in the United States, where the overall inequality is close to that of China. We also show that urban consumption inequality (which may be a better indicator of economic well-being) rose considerably.

Number of Pages in PDF File: 38

Keywords: Income distribution, inequality, China, rural and urban areas

JEL Classification: O15, O18, O53

working papers series