A Macroeconometric Model of Income Disparity in China

Abstract

This Paper examines what impacts, if any, macroeconomic performances and macroeconomic policy have and on income inequality in China during the period 1995-1998. A vector autoregression mode (VAR) is estimated which includes measures of macroeconomic performance, such as inflation and unemployment, and of macroeconomic policy such as money supply and fiscal expenditure. The VAR techniques, “innovation accounting” and “Granger causality,” are utilized to examine the causal linkage, if any, between “macro-factors” and income disparity in China. We find that fiscal spending and unemployment appear to be the most important sources of change income dispersion as far as the “macro” factors are concerned. [C32, D31,011 and 053]