Trends and Causes of Regional Income Inequality in China

Abstract

Although China has been successful in reducing national income inequality over the past decade, regional income inequality shows a fluctuating trend. The pre-tax income shares of the top 10% and 1% have grown since 1978 and reached about 40% and 15% of the total income share in 2015. Meanwhile, the pre-tax income shares of the bottom 50% have been falling, having dropped from one-quarter of the total income share to less than that of the top 1% in 2015. With this background, this study investigated the trends of income inequality from 2000 to 2020 in west, central, northeast, and east regions in China and analysed their influence factors. Income data from 271 prefecture-level cities in mainland China between 2010 and 2019 were used to calculate the Theil index in each province and region. The analysis was segregated based on urban and rural areas in four regions: east, northeast, central, and west. The Theil index indicated that the income inequality of different regions in China showed a declining trend in rural areas, and a declining and then increasing trend in urban areas. Furthermore, local economic development has a positive impact on income inequality, whereas the urbanization rate and fiscal spending rate have negative impacts on income inequality.