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

Author

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  • Cao, Linyi
  • Jiang, Yangtian
  • Zheng, Yu
  • Zhu, Lijun

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.

Suggested Citation

  • Cao, Linyi & Jiang, Yangtian & Zheng, Yu & Zhu, Lijun, 2023. "Unequal Transition: The Widening Wealth Gap amidst China's Rapid Growth," CEPR Discussion Papers 17820, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:17820
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    Keywords

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    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure

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