The evolution of income and wealth inequality in China

Abstract

Income and wealth inequality has increased substantially in China in the last decades. We propose a multi-sector model with rich heterogeneity to quantify the impact on inequality of key changes that started in the early 1990s. We find that rural-urban migration has alleviated the increase in income inequality by limiting the increase in the rural-urban income gap, and that the emergence and growth of the private sector is the key driving force behind the increase in wealth inequality. Our quantitative exercise suggests that pretax income concentration will continue to increase until the 2050s, while wealth concentration has already peaked.