Unequal Transition: The Widening Wealth Gap amidst China's Rapid Growth

Linyi Cao, Yangtian Jiang, Yu Zheng and Lijun Zhu

No 17820, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We develop a quantitative heterogeneous-agent model to study the rise of wealth inequality during China’s urban economic transition since the mid-1990s. The model incorporates private-sector liberalization, housing reform, rural-to-urban migration, and sectoral productivity growth. Calibrated to match key features of the transition, it accounts for about 60% of the observed increase in urban wealth inequality. We find that private-sector liberalization is the primary driver of rising inequality but generates welfare gains for all households through income growth. In contrast, housing reform substantially reduces wealth inequality while generating highly uneven welfare effects, with welfare losses for a large share of households. These results highlight that wealth inequality and welfare can move in opposite directions.

Keywords: Wealth inequality; Capital accumulation; Migration; Housing (search for similar items in EconPapers)
JEL-codes: E21 O11 O16 O18 (search for similar items in EconPapers)
Date: 2023-01
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