Decomposing Changes in Income Inequality into Vertical and Horizontal Redistribution and Reranking, with Applications to China and Vietnam

18 Pages Posted: 22 Apr 2005

See all articles by Adam Wagstaff

Adam Wagstaff

World Bank - Development Research Group (DECRG)

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Date Written: April 2005

Abstract

It is acknowledged that the lack of any systematic link between growth and income inequality does not necessarily mean that economic growth is not accompanied by major changes in the underlying income distribution. This paper employs a method devised to decompose the redistributive effect of a tax to analyze the extent to which vertical redistribution associated with changing incomes over time is offset or reinforced by horizontal redistribution and reranking. The paper uses panel data from China and Vietnam over a period when both countries grew spectacularly as they transitioned from planned to market economies, and yet experienced smaller annual percentage increases in income inequality. The results suggest that substantial amounts of horizontal redistribution and reranking in both China - and to a lesser extent Vietnam - more than offset pro-poor vertical redistribution. Without the horizontal redistribution and reranking, the Gini coefficient for China might have fallen between 1989 and 1997 - substantially so.

Keywords: Income inequality, vertical redistribution, horizontal redistribution, China, Vietnam

Suggested Citation

Wagstaff, Adam, Decomposing Changes in Income Inequality into Vertical and Horizontal Redistribution and Reranking, with Applications to China and Vietnam (April 2005). World Bank Policy Research Working Paper No. 3559. Available at SSRN: https://ssrn.com/abstract=708425

Adam Wagstaff (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

HOME PAGE: http://econ.worldbank.org/staff/awagstaff

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