Main Reasons for Income Inequality in China: Market or Government Policy?

Cai Meng, Yue Ximing

Journal of Finance and Economics Vol. 42, Issue 04, pp. 4 - 14 (2016)  DOI:10.16538/j.cnki.jfe.2016.04.001

Abstract

A country's income inequality is mainly determined by market factors and government income redistribution policy. Based on the data from China Household Income Project(CHIP), this paper calculates the Gini coefficients of market income and disposable income in China, and compares with developed countries to find reasons for the income inequality in China, resulting from market power or insufficient implementation of income redistribution policy. It shows that the gap between China and developed countries is not wide from a perspective of the Gini coefficient of market income. The unobvious effect of income redistribution policy mainly accounts for more serious income inequality in China than developed countries. The increase in the intensity of implementing redistribution policy like transfer payments is a key route to the alleviation of income inequality in China at present.

Keywords

income inequality; redistribution policy; transfer payment