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Decomposing changes in income inequality into vertical and horizontal redistribution and reranking, withapplications to China and Vietnam

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  • Wagstaff, Adam

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. The author uses 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 re-ranking. He 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 re-ranking in both China-and to a lesser extent Vietnam-more than offset pro-poor vertical redistribution. Without the horizontal redistribution and re-ranking, the Gini coefficient for China might have fallen between 1989 and 1997-substantially so.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3559.

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Date of creation: 01 Apr 2005
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Handle: RePEc:wbk:wbrwps:3559

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Keywords: Inequality; Governance Indicators; Poverty Impact Evaluation; Environmental Economics&Policies; Economic Theory&Research;

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References

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  1. Philippe Van Kerm, 2004. "What Lies Behind Income Mobility? Reranking and Distributional Change in Belgium, Western Germany and the USA," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 71(281), pages 223-239, 05.
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  3. Creedy, J. & Lambert, P.J. & van de Ven, J., 2001. "Close Equals and Calculation of the Vertical, Horizontal and Reranking Effects of Taxation," Department of Economics - Working Papers Series, The University of Melbourne 781, The University of Melbourne.
  4. Duclos, Jean-Yves & Jalbert, Vincent & Araar, Abdelkrim, 2000. "Classical Horizontal Inequity and Reranking: an Integrated Approach," Cahiers de recherche, Université Laval - Département d'économique 0002, Université Laval - Département d'économique.
  5. Bob Baulch & John Hoddinott, 2000. "Economic mobility and poverty dynamics in developing countries," Journal of Development Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 36(6), pages 1-24.
  6. Dollar, David & Kraay, Aart, 2001. "Trade, growth, and poverty," Policy Research Working Paper Series 2615, The World Bank.
  7. Schiller, Bradley R, 1977. "Relative Earnings Mobility in the United States," American Economic Review, American Economic Association, American Economic Association, vol. 67(5), pages 926-41, December.
  8. Lambert, Peter J & Aronson, J Richard, 1993. "Inequality Decomposition Analysis and the Gini Coefficient Revisited," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 103(420), pages 1221-27, September.
  9. Wagstaff, Adam & van Doorslaer, Eddy & van der Burg, Hattem & Calonge, Samuel & Christiansen, Terkel & Citoni, Guido & Gerdtham, Ulf-G. & Gerfin, Michael & Gross, Lorna & Hakinnen, Unto, 1999. "Redistributive effect, progressivity and differential tax treatment: Personal income taxes in twelve OECD countries," Journal of Public Economics, Elsevier, Elsevier, vol. 72(1), pages 73-98, April.
  10. Ravallion, Martin & Chen, Shaohua, 2007. "China's (uneven) progress against poverty," Journal of Development Economics, Elsevier, Elsevier, vol. 82(1), pages 1-42, January.
  11. Ravallion, Martin & Lokshin, Michael, 2004. "Gainers and losers from trade reform in Morocco," Policy Research Working Paper Series 3368, The World Bank.
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  13. Aronson, J Richard & Johnson, Paul & Lambert, Peter J, 1994. "Redistributive Effects and Unequal Income Tax Treatment," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 104(423), pages 262-70, March.
  14. Ravallion, Martin, 2004. "Competing concepts of inequality in the globalization debate," Policy Research Working Paper Series 3243, The World Bank.
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Cited by:
  1. Zhu, Nong & Luo, Xubei, 2008. "The impact of remittances on rural poverty and inequality in China," Policy Research Working Paper Series 4637, The World Bank.
  2. Jim Cobbe, 2007. "Education, Education Financing, and the Economy in Viet Nam," Working Papers, Department of Economics, Florida State University wp2007_11_01, Department of Economics, Florida State University, revised Jul 2009.
  3. Saccone Donatella, 2011. "Potenze economiche emergenti: Cina e India a confronto.Istruzione e diseguaglianze," Department of Economics and Statistics Cognetti de Martiis. Working Papers, University of Turin 201113, University of Turin.
  4. Saccone Donatella, 2008. "Educational Inequality and Educational Poverty. the Chinese Case in the Period 1975-2004," Department of Economics and Statistics Cognetti de Martiis. Working Papers, University of Turin 200808, University of Turin.
  5. Zhu, Nong & Luo, Xubei, 2006. "Nonfarm activity and rural income inequality : a case study of two provinces in China," Policy Research Working Paper Series 3811, The World Bank.

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