Income polarization in China: Trends and changes☆

Article history: Received 14 January 2015 Received in revised form 17 August 2015 Accepted 17 August 2015 Available online 1 September 2015 This paper estimates income polarization in China from 1978 to 2010 and decomposes the estimated polarization by population subgroups. In addition, a framework is proposed to disentangle a change in polarization into a growth and a redistribution component. This framework is then used to quantify the contributions of various income sources to a rise in polarization in China between 2002 and 2007. The analytical results suggest that (1) income polarization exhibited a broadly increasing trend from 1978 to 2010; (2) income polarization was large and rising among rural citizens, while low and declining among urban citizens; polarization of migrants also declined; (3) geographically, income polarization rose in east and particularly central China, while west China was most polarized with little change over time; and (4) the rise in polarization between 2002 and 2007 was mainly driven by the investment income, followed by transfers. Conversely, business income is polarization-reducing, especially in rural China. To a lesser extent, wage is also polarization-reducing, especially among migrants. © 2015 Published by Elsevier Inc. JEL classification: D31 D63 D74 O53