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By:Jing Kong
Published on 2007 by

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The economic reforms during the past eighteen years in China have increased income inequality. This study investigates the impact of policy changes on income inequality both within and between rural villages in Zhejiang province in China. Income inequality was measured using the Gini coefficient. The Gini coefficient was decomposed into income factors: labor, entrepreneurship, capital, transfer and other income. The decomposition includes the proportion of income from each factor and its distribution, known as the concentration rate, both of which affect income distribution. The major cause of income inequality within villages is the differences in factor endowments of each family, which families change in response to policy. Entrepreneurship and capital income have the highest concentration rates, which contribute to increasing inequality within villages. Labor income is distributed similar to overall income, and its proportion decreased, which means that labor income became more equally distributed within villages. The major cause of income inequality among villages is the differences of endowments and market access. The proportion of entrepreneurship and capital income increased, and these two income factors have the highest concentration rates, contributing to an increase in inequality between villages. Labor income became more equality distributed among villages through time. Patterns of and causes of income inequality varied among the villages, suggesting that policy needs to be flexible to address income inequality.

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