The factors that impact income inequality of rural residents in China: Decomposing the Gini coefficient from income components

This paper attempts to explore the causes behind the change of the inequality in China rural areas at the very beginning of this century by decomposing the inequality of the total per capita income into the contributions from different income components. Furthermore, we develop the decomposition method of Gini coefficients from the income components and use it not only in the static analysis but also in comparative static analysis. Namely it can be used to explore the change of the overall inequality by decomposing the change of Gini Coefficient from income components. The empirical results show that the wage from local employment, the income from agricultural household business and the incomes from non-agricultural household business are the three income components that made the largest contributions to the inequality of the total per capita income. The total contribution to the overall inequality of non-agricultural incomes was much more than that of agricultural incomes. The incomes from agricultural household business, the incomes from non-agricultural household business and the wages from migration made the positive impact on the increase of the overall inequality. The incomes donated by relatives and friends made the most important negative impact on the increase of the overall inequality.