Urban-Biased Politics and Rising Income Inequality in China
Posted: 21 Nov 1999
Since the inception of economic reforms, China has experienced the largest increase in income inequality of all countries with comparable data. Using household survey information, this paper decomposes the overall inequality into three sectoral components - within rural areas, within urban areas, and sectoral disparity. The results indicate that rising rural-urban income differentials have been the driving factor behind the increases in China's overall inequality. I argue that urban-biased policies and institutions, including labor mobility restrictions, welfare systems, and financial policies of inflation subsidies and investment credits to the urban sector, are responsible for the long-term rural-urban divide and the recent increases in disparity.
JEL Classification: O53
Suggested Citation: Suggested Citation