Income inequality among peers in China: Does internet penetration have a role?

Abstract

In the Internet age, income inequality within peer groups has raised attention. We examine the effect of Internet penetration on peer income inequality and investigate whether the Internet penetration and peer income inequality relationship can be reinforced by human capital. Using a combination of macro and microdatabases of China over the period 2010–2018, we find that peer income inequality in China generally follows a downward trend from 2010. In addition, we show that Internet penetration significantly reduces peer income inequality. Internet penetration has a negative effect on peer income inequality among those under 40 years old, while the effect is reversed among those aged 40–60. Furthermore, human capital can reinforce the links between Internet penetration and peer income inequality. Our results confirm that a mixed indicator of Internet penetration and human capital investment should be part of an active economic policy aimed at reducing peer income inequality.