Income inequality dynamics in rural China from 1991 to 2006: The role of alternative income sources

This article decomposes income inequality in rural China into five income sources and studies the marginal effect of each income source on total income inequality. We find that rising wage income and declining agricultural income play important roles in the rapid increase of income inequality in rural China from 1991 to 2006. Only increases in agricultural income appear to reduce total income inequality. China has recently eliminated taxes on agricultural income. These findings suggest that such a policy will help reduce income inequality in rural China.