A New Era pp 59-82 | Cite as

Why China’s Gini Coefficient Has Been Falling?

A Study Based on Income Sources
  • Tianyu Yang
  • Zhinan Cao


By decomposing the Gini coefficient and the Gini coefficient differences by income source, this chapter tries to explore the reasons why the Gini coefficient has been falling in recent years in China. The chapter’s analytical framework consists of two parts. The first is to decompose the Gini coefficient by income source, and the second is to decompose the differences between the Gini coefficient in a given year and the average value during the period observed into three components—the inequality effect, share effect, and correlation effect of each income source. The breakdown of Gini coefficient differences, in particular, facilitates a better estimate of how each income source contributed to the decrease in the Gini coefficient. It is found that while the decline in the wage inequality contributes the most to the decline in the Gini coefficient, the share effect of transfers is the main factor preventing the decline. Therefore, to decrease the Gini coefficient requires efforts to reduce the inequality in wages and transfers and adjust the share of transfers.


Gini coefficient Income sources Wages Transfers 


  1. Bai, Suxia & Chen, Jingan, On Income Gap between Urban and Rural China from the Perspective of Income Resources. Social Science Research, No. 1, 2013.Google Scholar
  2. Chen, Changbing, Gini Coefficient Calculation and Non-parametric Econometric Model Analysis of Residents’ Income in Various Regions. The Journal of Quantitative &Technical Economics, No. 1, 2007.Google Scholar
  3. Chen, Zongsheng & Zhou, Yunbo, On Income Distribution in Reform and Development. Economic Science Press, 2002.Google Scholar
  4. Cheng, Yonghong, The Evolution of National Gini Coefficient and Urban-Rural Decomposition since the Reform. Social Sciences in China, No. 4, 2007.Google Scholar
  5. Fan, Congliang & Zhang, Zhongjin, Income Inequality Effects and Income Structure Optimization Itemized. Journal of Financial Research, No. 1, 2011.Google Scholar
  6. Gu, Haibing & Wang, Yahong, Decomposition of Income Gap between Rural and Urban China Residents: 1985–2007. Economist, No. 6, 2008.Google Scholar
  7. Huang, Zuhui, Wang, Min & Wan, Guanghua, Income Inequality of Residents in China: From the Perspective of Transfer. Management World, No. 3, 2003.Google Scholar
  8. Li, Shi, Zhao, Renwei & Zhang, Ping, China’s Economic Transformation and Changes in Income Distribution. Economic Research Journal, No. 4, 1998.Google Scholar
  9. Liu, Xuke, Impact of Income Sources on Income distribution among Rural Households in China. Journal of Graduate School of Chinese Academy of Social Sciences, No. 6, 2013.Google Scholar
  10. Li, Qiyun & Chi, Cheng, Macro-Decomposition and Regional Disparities of Urban-Rural Income Gap—from the Perspective of Income Sources. Reform of Economic System, No. 6, 2015.Google Scholar
  11. Qu, Xiaobo & Du, Yang, Income Gap and Compositional Changes among Rural Areas: 1995–2008. Economic Theory and Business Management, No. 7, 2010.Google Scholar
  12. Tian, Weimin, Gini Coefficient Calculation of Provincial Residents’ Income and Analysis of Changing Trends. Economic Science Press, No. 2, 2012.Google Scholar
  13. Wang, Yafeng, Income Distribution Estimation of the Residents in Urban and Rural China, 1985–2009. The Journal of Quantitative & Technical Economics, No. 6, 2012.Google Scholar
  14. Wang, Pingpin, On Problems with Gini Coefficient Calculation of Residents’ Income. China Information News, 1st edition, 5 February2013.Google Scholar
  15. Zeng, Guoan & Hu, Jingjing, Causes of Formation and Expansion of Urban-Rural Residents’ Income Gap Since 2000: An Analysis from the Perspective of Income Sources. Finance & Trade Economics, No. 4, 2008.Google Scholar
  16. Chotikapanich, D., Rao, P. & Tang, K., Estimating Income Inequality In China Using Grouped Data and the Generalized Beta Distribution. Review of Income and Wealth, Vol. 53, No. 1, 2007, pp. 127–147.Google Scholar
  17. Fei, J. H., Ranis, G., Shirley, W. & Kuo, Y., Growth and the Family Distribution of Income by Factor Components. Quarterly Journal of Economics, Vol. 92, No. 1, 1978, pp. 17–53.Google Scholar
  18. Flückiger, Y. & Silber, J., Income Inequality Decomposition by Income Source and the Breakdown of Inequality Differences between Two Population Subgroups. Swiss Journal of Economics & Statistics, Vol. 131, 1995, pp. 599–615.Google Scholar
  19. Lerman, R. I. & Yitzhaki, S., Income Inequality Effects by Income Source: A New Approach and Applications to the United States. Review of Economics & Statistics, Vol. 67, No. 1, 1985, pp.151–156.Google Scholar
  20. Shorrocks, A. F., Inequality Decomposition by Factor Components. Vol. 50, 1982, pp. 193–211.Google Scholar
  21. Silber, J., Factor Components, Population Subgroups and the Computation of the Gini Index of Inequality. Review of Economics & Statistics, Vol. 71, No. 1, 1989, pp. 107–115.Google Scholar
  22. Sundrum, R. M., Income Distribution in Less Development Countries. London and New York: Routledge, 1990, p. 50.Google Scholar
  23. Yao, S., On the Decomposition of Gini Coefficients by Population Class and Income Source: A Spreadsheet Approach and Application. Applied Economics, Vol. 31, No. 10, 1999, pp. 1249–1264.Google Scholar

Copyright information

© The Author(s) 2019

Authors and Affiliations

  • Tianyu Yang
    • 1
  • Zhinan Cao
    • 2
  1. 1.School of EconomicsRenmin University of ChinaBeijingChina
  2. 2.China Securities Depository and Clearing Company LimitedHong KongChina

Personalised recommendations