Changes in income distributions in China in the process of economic reform in the 1980s: A welfare approach

Abstract

This paper examines the changes in China's income distributions in the 1980s. Lorenz curves of annual income distributions are estimated separately for the urban and rural sectors using the Kakwani technique and Gini coefficients are then calculated from the Lorenz curves. Social welfare functions with defensible properties are used to rank these distributions. We find that in the 1980s period inequality in both the urban and rural sectors had increased. But before 1985, rise in mean income had more than compensated for the worsening of equality. Hence welfare was improved. Since 1985, real income has not increased sufficiently. It is argued that China in the late 1980s is not better than China in early 1980s.