This thesis aims to shed light to the various characteristics and sources of income inequality in China and thereby demonstrate their interrelations on economic growth using a literature review approach and by examining the impact of differences in the propensity to save among various Chinese income groups. In the course of this, China’s current degree of income inequality is established, while identifying various forces and drivers behind these changes since the economic opening process initiated in 1978.
Since adoption of the open-market policy reforms in 1978, China has experienced rapid economic growth. At the same time, its level of income inequality turned from one of the world's most equal to one of the most unequal. During long periods of time China was the country that experienced the fastest increase in income inequality. This bags the question whether income inequality is in fact the causal reason for economic growth or the necessary outcome of it. In the wake of this, income inequality in China has developed into several dimensions of inequality drivers ranging from an extensive urban-rural inequality, cross-regional inequality, inequality of education or wealth inequalities.
Table of Contents
SECTION 1: Introduction
SECTION 2: Theoretical Background
2.1 Definitions
2.1.1 Measurement of Income Inequality
2.1.2 Limitations of the Gini coefficient
2.1.3 Measurement of Economic Growth
2.2 Data
2.3 Theory on Economic Growth and the Distribution of Income
SECTION 3: Literature Review on Economic Growth and Income Inequality
3.1 Income Inequality: The Necessary Evil for the Sake of Economic Growth?
3.2 The impact of Income Inequality on Economic Growth
3.3 Long-term Implications of Income Inequality on Economic Growth
3.4 Relationship between Income Inequality and Economic Growth in China
SECTION 4: Income Inequality in China
4.1 Extend of Income Inequality in China
4.2 Income Inequality and Insufficient Consumption
4.2 Overview of Policy Measures by the Chinese Government
SECTION 5: Drivers of Income Inequality in China
5.1 Economic Opening Process
5.2 The Urban-Rural Income Gap
5.3 Educational Inequality
5.4 Regional Inequality
5.5 Inequality of Wealth
5.6 Demographic Change
5.7 China’s Taxation System
SECTION 6: Policy Recommendations
6.1 Taxation Reforms
6.2 Fiscal Policies
6.3 Dibao
SECTION 7: Conclusion
Research Objectives and Key Topics
This master's thesis aims to analyze the development and drivers of income inequality in China since the beginning of economic reforms in 1978. It explores the relationship between income inequality and economic growth, investigates the primary causes of wealth and income disparities, and proposes policy recommendations to mitigate these imbalances.
- Historical development of income inequality in China since 1978.
- The relationship between economic growth and income distribution.
- Structural drivers of inequality, including urban-rural gaps, educational disparities, and regional differences.
- Analysis of the Chinese tax system and social welfare measures (Dibao).
- Long-term implications of inequality on domestic consumption and future economic growth.
Excerpt from the Book
3.2 The Impact of Income Inequality on Economic Growth
From a practical perspective, the relationship between the extent to which income is equally distributed within a population and economic growth is not linear. More importantly, numerous non-observed parameters surely lead to omitted variable biases for studies conducted in that field. Hence, various empirical studies have produced quite distinctive results. Previously, it was believed that income inequality was positively related with growth in the economy, given that proper incentives are provided to individuals to stimulate such growth. Between the 1950s and 1960s, researchers argued that the propensity of high income individuals to make higher savings meant that income inequality results in increased levels of investments, hence positively affecting the growth in the economy (Benhabib, 2003). In a review of 45 countries between 1966 and 1995, Forbes established that there is a positive relationship between the level of income inequality within a country and its growth in terms of the economy (Forbes, 2000).
Nonetheless, by the 1990s, a myriad of empirical studies provided a different position. In a study conducted by Knell (1999) to establish the relationship that existed between income distribution using the Gini coefficient and per capita GDP growth rate, the researcher noted that between 1960 and 1985, the annual growth rate was reduced by between 0.3 percent and 0.6 percent as a result of a 10 percentage points rise in the Gini coefficient. In a different study, Herzer and Vollmer (2012) examined the impact that income inequality had on the GDP per capita of 46 countries between 1970 and 1995, with the researchers concluding that a rise in income inequality negatively affected GDP growth. Significantly, the researchers established that such a relationship was uniform across both developed and developing countries, as well as across both democratic and non-democratic countries (Herzer & Vollmer, 2012). Nonetheless, as they conducted their literature review, the authors established that some studies point to a positive relationship between economic growth and income inequality (Herzer & Vollmer, 2012).
Summary of Chapters
SECTION 1: Introduction: This chapter provides an overview of the global debate on income inequality and introduces the specific case of China, highlighting its transition from an equal society to one with significant income disparities.
SECTION 2: Theoretical Background: This section defines the core measurement tools, such as the Gini coefficient and the Lorenz curve, and discusses traditional economic growth theories and their link to income distribution.
SECTION 3: Literature Review on Economic Growth and Income Inequality: This chapter examines existing scholarly literature, analyzing the debate over whether inequality serves as a "necessary evil" for growth or acts as a hindrance to long-term economic development.
SECTION 4: Income Inequality in China: This section details the historical extent of income inequality in China since 1978, utilizing data on income distribution and consumption patterns to evaluate its impact.
SECTION 5: Drivers of Income Inequality in China: This chapter identifies the core structural drivers of inequality, including the economic opening process, the urban-rural divide, educational disparities, regional gaps, and demographic shifts.
SECTION 6: Policy Recommendations: This section offers specific recommendations, including tax reforms and adjustments to the social welfare system (Dibao), to address income inequality effectively.
SECTION 7: Conclusion: This final chapter synthesizes the research findings, confirming the negative impacts of excessive income inequality and summarizing the necessary policy responses for future economic stability.
Keywords
Income inequality, China, Economic growth, Gini coefficient, Urban-rural gap, Wealth inequality, Human capital, Taxation reform, Redistribution, Consumption, Educational inequality, Regional disparities, Social welfare, Dibao, Sustainable growth.
Frequently Asked Questions
What is the core focus of this thesis?
The thesis focuses on analyzing the evolution and the underlying drivers of income inequality in China from 1978 to the present, while investigating its relationship with the country's rapid economic growth.
What are the primary themes discussed?
Central themes include the measurement of income inequality, the debate on inequality's impact on economic growth, structural drivers such as the urban-rural income gap, regional differences, and policy responses to these challenges.
What is the main research question of this study?
The research explores the relationship between income inequality and economic growth in China, seeking to understand how income inequality has evolved, what drives this change, and what policies can address it.
Which scientific methods are applied?
The study primarily utilizes a comprehensive literature review approach, complemented by an analysis of national Chinese statistical data and cross-country comparisons using the Gini coefficient and household survey data.
What does the main body cover?
The main body covers theoretical backgrounds, a literature review on growth and inequality, an empirical look at the extent of inequality in China, detailed analyses of specific inequality drivers, and an assessment of current government policies.
Which keywords characterize this work?
Key terms include income inequality, economic growth, Gini coefficient, urban-rural gap, wealth inequality, human capital, taxation reform, and social welfare.
How does the hukou system influence inequality in China?
The hukou system restricts the internal movement and access to public services for rural migrants in cities, creating a significant income and opportunity gap compared to urban registered households.
Why does the author discuss the Kuznets hypothesis?
The author evaluates the relevance of the Kuznets inverted-U hypothesis for China to determine if income inequality naturally declines after a certain stage of economic development, or if it remains a persistent challenge.
What role does the 'Dibao' program play?
The Dibao is China's main social welfare safety net intended to supplement the income of the poor; however, the author highlights its restrictive nature and issues regarding work incentives.
What is the author's stance on taxation in China?
The author argues that China's tax system is currently regressive, relying heavily on indirect taxes, and recommends a shift toward direct taxation to better address inequality and support redistribution.
- Citation du texte
- Christian Wagner (Auteur), 2019, Income Inequality in China. Development and Underlying Drivers, Munich, GRIN Verlag, https://www.grin.com/document/899986
