Accounting for changes in income inequality in China, 2002–2018: evidence from household survey data

Abstract

This paper examines causes behind recent changes in income inequality in China, especially its moderation since 2008, using household survey data and decomposition analyses. It is found that, by income sources, contributors to the moderation in inequality were wage income, pension, and other transfers, offset somewhat by the inequality‐increasing effect of changes in net farm and nonfarm business incomes, net asset income, imputed rent, and personal income tax and social security contribution. By household characteristics, contributors to inequality moderation were a narrowing in the urban–rural income gap, rural–urban migration, and a decline in regional income disparity, offset by widening inter‐industry earning differentials, a rise in the education premium, and changes in some unknown factors. These results are likely an outcome of some fundamental drivers working together, including processes of catch‐up growth and structural transformation, market‐driven forces including technological progress and globalisation, government policy actions, and remaining market distortions.