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Understanding the Recent Trend of Income Inequality in China

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  • Juzhong Zhuang

    (Asian Development Bank, also associate of Department of Economics, SOAS University of London, UK)

  • Shi Li

    (Beijing Normal University, China)

Abstract

This paper examines underlying factors that could explain the decline in income inequality in China since 2008 and inquires whether the decline indicates Chinaís income inequality has peaked following the Kuznets hypothesis. The paper first identifies four key drivers of rising income inequality in China since the mid-1980: rising skill premium, declining share of labor income, increasing spatial inequality, and widening inequality in the distribution of wealth. It then provides evidence that the reversal of these drivers, with the exception of wealth inequality, could partly explains the decline in income inequality since 2008. The paper argues that since part of the reversal of these drivers is policy-induced, it is important that the policy actions continue for income inequality to decline further. The paper further argues that a critical factor underlying the Kuznets hypothesis is that taxation and transfers play a bigger role in income redistribution as a country becomes more developed, while their role is still limited in China, the future path of Chinaís income inequality may not be one-directional, and may stay high before personal income tax plays a bigger role.

Suggested Citation

  • Juzhong Zhuang & Shi Li, 2016. "Understanding the Recent Trend of Income Inequality in China," Working Papers 196, Department of Economics, SOAS University of London, UK.
  • Handle: RePEc:soa:wpaper:196
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    File URL: https://www.soas.ac.uk/sites/default/files/2022-10/economics-wp196.pdf
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    References listed on IDEAS

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    Cited by:

    1. Rory Horner & David Hulme, 2019. "From International to Global Development: New Geographies of 21st Century Development," Development and Change, International Institute of Social Studies, vol. 50(2), pages 347-378, March.

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    More about this item

    Keywords

    Income inequality; the Chinese economy; Kuznets hypothesis;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • N35 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - Asia including Middle East

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