Decomposition Measurement And Empirical Analysis Of Income Inequality

Since the reform and opening up, the economic development of China’s provinces, municipalities and autonomous regions have made great achievements. The Chinese people have shared the fruits of economic development and their income sustained to grow. However, as regions differ in economic bases, cultural background and other geo-economic factors, their economic development level especially income level have non-balanced growth characteristics.In order to measure regional income inequality more accurately and identify factors affecting income inequality, as well as make policies relating to control and reduce inequality, based on the data of Chinese household income project survey conducted by the Chinese Academy of Social Sciences and Institute of Economics and National Bureau of Statistics (part of personal income distribution data in China’s provinces, municipalities and autonomous regions), this thesis apply Zenga index to analyze income inequality between China’s towns and rural areas. Apart from this, we compared them with the traditional Gini coefficient analysis results. Then we discussed the inequality decomposition within urban and rural areas, and analysis of the contribution of the three regions, eastern and central as well as western areas within the region and inter-regional inequality to urban and rural areas. The empirical analysis found that not only within urban areas but also within rural areas, the income inequality had gradually expanded, furthermore, the income inequality between urban areas and rural areas also enlarged step by step. In addition, in the overall distribution of income inequality, the inequality between urban and rural areas as well as within urban areas and rural areas are very significant. Comparing with the internal income inequality in urban and rural areas, the inequality between urban and rural areas is more serious. Regions which have income inequity accounted for two-thirds of the urban and rural areas.Therefore, whether in urban or in rural areas, regional differences are the most important causes of income inequality in China. Finally, the author put forward several policy recommendations on controlling and reducing income inequality in China.