Rapid widening of the income inequality in the People’s Republic of China (PRC) occurred only between 1990 to 2008 and not throughout the entire period of rapid economic growth. Since 2008, Gini coefficient has been declining, albeit very slowly.
Four key factors can be identified as the drivers of rapid widening of income inequality in the PRC: increasing spatial inequality, rising skill premium, declining share of labor income, and widening of wealth inequality.
Without comprehensive policy adjustments, inequality is likely to persist. This policy note highlights the crucial role that fiscal policy could play in reducing income inequality, both directly and indirectly. Equalization of access to opportunities, strengthening of social safety nets and progressive tax reforms are vital in reducing inequality.
