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Primary Distribution, Top Incomes and Inequality in China, 1978-2007

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  • Ricardo Molero Simarro

Abstract

Most analyses explain the increase in China's overall inequality during the reform period principally by means of the expansion of urban-rural income gap. This paper tries to shed light on a more complex relationship that appears to exist between primary distribution of income, top incomes share, and the Gini index. This relationship is mediated by the same urban-rural disequalizing mechanism existing in the Chinese economy, which is based on the hukou system. After presenting the main theoretical contributions that clarify the general relationship among those three variables, we describe that mechanism which has connected them in China during three last decades. As we shall see, there exists a link between the relative impoverishment of Chinese peasants, the consequent flow of rural-urban migration, its depressive effect on industrial wages, the resulting increase in the profits’ share, and rising top incomes. The enrichment of urban top income households seems to drive the rise in the urban-rural gap, while labour’s loss of share in national income ultimately accounts for the overall increase in the Gini index. The paper ends with a reflection on the ability of the latest policy measures taken by the Chinese government to reverse this pattern of inequality during the current global economic crisis.

Suggested Citation

  • Ricardo Molero Simarro, 2012. "Primary Distribution, Top Incomes and Inequality in China, 1978-2007," Working Papers wp301, Political Economy Research Institute, University of Massachusetts at Amherst.
    • Handle: RePEc:uma:periwp:wp301
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    References listed on IDEAS

    as
    1. Duangkamon Chotikapanich & D. S. Prasada Rao & Kam Ki Tang, 2007. "Estimating Income Inequality In China Using Grouped Data And The Generalized Beta Distribution," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 53(1), pages 127-147, March.
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    More about this item

    Keywords

    Functional Distribution of Income; Top Incomes; Urban-Rural gap; Gini Index; Chinese Economy;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • P25 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Urban, Rural, and Regional Economics
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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