Understanding the Recent Trend of Income Inequality in China

Juzhong Zhuang () and Shi Li ()

No 196, Working Papers from Department of Economics, SOAS University of London, UK

Abstract: This paper examines underlying factors that could explain the decline in income inequality in China since 2008 and inquires whether the decline indicates Chinaís income inequality has peaked following the Kuznets hypothesis. The paper first identifies four key drivers of rising income inequality in China since the mid-1980: rising skill premium, declining share of labor income, increasing spatial inequality, and widening inequality in the distribution of wealth. It then provides evidence that the reversal of these drivers, with the exception of wealth inequality, could partly explains the decline in income inequality since 2008. The paper argues that since part of the reversal of these drivers is policy-induced, it is important that the policy actions continue for income inequality to decline further. The paper further argues that a critical factor underlying the Kuznets hypothesis is that taxation and transfers play a bigger role in income redistribution as a country becomes more developed, while their role is still limited in China, the future path of Chinaís income inequality may not be one-directional, and may stay high before personal income tax plays a bigger role.

Keywords: Income inequality; the Chinese economy; Kuznets hypothesis (search for similar items in EconPapers)
JEL-codes: D31 D63 N35 (search for similar items in EconPapers)
Pages: 23
Date: 2016-06
New Economics Papers: this item is included in nep-cna, nep-net, nep-pbe and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:soa:wpaper:196

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