Income inequality and redistribution

Zhonghua Wang, Meng Cai and Ximing Yue

Chapter 15 in Handbook on Inequality in China, 2025, pp 350-377 from Edward Elgar Publishing

Abstract: Redistribution policies are essential instruments for reducing income inequality. This chapter reviews the evolution of China's personal income tax and social security systems since the 1980s. It introduces two prevalent methodologies for evaluating effects of redistribution policies on income inequality: the redistribution effect index and the Gini coefficient decomposition by income sources. They are used to measure the overall and marginal effects, respectively. Based on data from the China Household Income Project (CHIP) spanning 1988 to 2018, this chapter reveals that China's fiscal policies have increasingly promoted income redistribution. Personal income taxes effectively reduce income inequality but are limited by their small scale, while social security contributions are regressive. Government transfers significantly decrease income inequality in terms of overall effects. However, inequality may increase when transfers are marginally increased. This chapter also highlights significant disparities in redistributive effects between urban and rural areas.

Keywords: Income inequality; Redistribution policies; Public pension; Personal income tax; Overall effect; Marginal effect (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035317790
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