Rural Income Volatility and Inequality in China

Available data indicates a growing urban-rural income gap (the ratio of mean urban to rural incomes) with a significant increase from around 1.8 in the late 1980's to over 3 today. These estimates do not take into account the higher volatility of rural incomes in China. Current literature based on analyses of rural income volatility in China decomposes poverty into chronic and transient components using longitudinal survey data and assesses the fraction of the Foster, Greer and Thorbecke poverty gap attributable to mean income over time being below the poverty line. Resulting estimates of 40-50 % transient poverty point to the policy conclusion that poverty may be a less serious social problem than it appears in annual data due to rural income volatility. Here we use a direct method instead to adjust rural income for volatility using a certainty equivalent income measure and recompute summary statistics for the distribution of volatility corrected incomes, including the urban-rural income gap on which much of current poverty debate in China focuses. Since an uncertain income stream is worth less in utility terms than a certain income stream we argue that heightened rural volatility increases the effective urban-rural income gap and intensifies not weakens poverty concerns. Using Chinese longitudinal rural survey data for which current decompositions can be replicated, we make adjustments for certainty equivalence of rural household income streams which not only widen the urban-rural income gap in China but also increases other distributional summary statistics. Depending upon values used for the coefficient of relative risk aversion, the measured urban-rural income gap increases by 20-30% using a certainty equivalent measure to adjust rural incomes for volatility. We also conduct similar analyses using consumption data, for which slightly larger increases occur.

China's Long-Term International Trade Statistics: By Commodity, 1952-1964 and 1981-2000

International trade has been a key engine driving Chinese economic growth in recent decades. Yet, long-term analyses of China's trade are still difficult because the country's trade statistics for the post-war period up to the mid-1980s have many shortcomings For example, official customs statistics published by the Chinese government during this period, if they were published at all, do not provide any breakdown by commodity classification. Against this background, we recently compiled new statistics of China's trade during 1952-1964 and 1981-2000 at the 3-digit level of the Standard International Trade Classification, Revision 1 (SITC-R1). The statistics for 1952-1964 and 1981-1987 are based on data we purchased from China's National Statistical Bureau. The data for 1988-2000 are compiled from the Commodity Trade Statistics of the United Nations (UN Comtrade) as a part of our joint work with scholars at the Institute of Development Economies, Japan External Trade Organization (IDE-JETRO). In this paper, we provide an overview of existing statistics of China's international trade and present our newly compiled statistics.

The Causes of Chronic and Transient Poverty and Their Implications for Poverty Reduction Policy in Rural China

The study focuses on two components of total poverty: chronic and transient poverty, and investigates their relative importance in total observed poverty, as well as the determinants of each components. We found that transient poverty accounts for a large proportion of total poverty observed in the poor rural areas of China. By analyzing the determinants of the two types of poverty, we found that household demographic characteristics, such as age of the head of households, family sizes, labour participation ratio, and educational level of the head of the households, are very important to the poverty status of households. These factors matter more to chronic poverty than transient poverty, and have greater impacts on the poverty measured by consumption than that measured by income. Besides the demographic factors of households, other household factors like physical stocks, the composition of income, and the amount of cultivated lands also have significant effects on both chronic and transient poverty. It is also confirmed that change in cash holding and saving and borrowing grain are used by rural households to cope with income variation and smooth their consumption. Attributes of community where the households reside are also important to poverty. With very few exceptions, we did not find that poverty programs have significant impact on poverty reduction at the households' level. We interpreted this as the poverty programs benefiting the wealthy more than the poor in a given poor area. The main reason for this could be that the implementation design of these programs fails to target the poor.Income risk, chronic poverty, transient poverty, poverty program evaluation, China

The Redistributive Impact of Taxation in Rural China, 1995-2002: an Empirical Study Using the 1995-2002 CASS CHIP Surveys

This paper evaluates the redistributive impacts of rural taxation in China, using the CASS CHIP survey 1995-2002. The main findings can be summarized as follows.First, the major policy target of rural taxation reform--reducing the average rate of taxes and levies--was accomplished between 1995 and 2002, with favorable redistributive results. When the aggregate scene is observed, the disequalizing redistributive impact of taxation declined between 1995 and 2002. Second, despite these positive results from the aggregate perspective, the favorable impact of the reform was severely limited because overall rural taxation remained disequalizing after the reform and regressivity in taxation itself, measured by the Kakwani index and the income elasticity of taxation, increased between 1995 and 2002. The favorable change in the redistributive impact between these years did not occur as a result of a decrease in the degree of regressivity of the tax itself, but because the average rate of taxation and before-tax income inequality declined. Moreover, when the regional picture is observed, the overall redistributive impact of taxation worsened in several provinces following the reform.redistributive effects of taxation, fiscal reform, local governance, intergovernmental relations, rural China

2011-19 Redistributive Impacts of Personal Income Tax in Urban China

The purpose of this paper is to evaluate the redistributive effects of the personal income tax (PIT). Information on the PIT reported in the household survey substantially understates the real tax liability borne by households. The redistributive effects of the personal income tax would be undervalued if the information was used. In order to correct the underestimation of the PIT by non-reporting in our dataset, we apply the tax schedule and impute the tax liability for the individuals in our sample according to the components of their earned income. This imputed tax liability is used to calculate the MT index, the most commonly used measure of the redistributive effects of taxes and governmental subsidies, and to decompose the MT index into the effects of horizontal equity and vertical equity. The MT index and its decomposition show that the personal income tax does reduce inequality, but the effect is small and negligible. The low average personal income tax rate is the main reason why it fails to contribute more to improving inequality.グローバルCOEプログラム = Global COE Program20

Migrants as second-class workers in urban China? A decomposition analysis

In urban China, urban resident annual earnings are 1.3 times larger than long term rural migrant earnings as observed in a nationally representative sample in 2002. Using microsimulation, we decompose this difference into four sources, with particular attention to path dependence and statistical distribution of the estimated effects: (1) different allocation to sectors that pay different wages (sectoral effect); (2) hourly wage disparities across the two populations within sectors (wage effect); (3) different working times within sectors (hours effect); (4) different population structures (population effect). Although sector allocation is extremely contrasted, with very few migrants in the public sector and very few urban residents working as self-employed, the sectoral effect is not robust to the path followed for the decomposition. We show that the migrant population has a comparative advantage in the private sector: increasing its participation into the public sector does not necessarily improve its average earnings. The opposite holds for the urban residents. The second main finding is that population effect is significantly more important than wage or hours effects. This implies that the main source of disparity is pre-market (education opportunities) rather than on-market.chinese labor market ; discrimination ; earnings differentials ; migration

Migrants as second-class workers in urban China? A decomposition analysis

In urban China, urban resident annual earnings are 1.3 times larger than long term rural migrant earnings as observed in a nationally representative sample in 2002. Using microsimulation, we decompose this difference into four sources, with particular attention to path dependence and statistical distribution of the estimated effects: (1) different allocation to sectors that pay different wages (sectoral effect); (2) hourly wage disparities across the two populations within sectors (wage effect); (3) different working times within sectors (hours effect); (4) different population structures (population effect). Although sector allocation is extremely contrasted, with very few migrants in the public sector and very few urban residents working as self-employed, this has no clear impact on differential earnings. Indeed, the sectoral effect is not robust to the path followed for the decomposition. We show that the migrant population has a comparative advantage in the private sector: increasing its participation into the public sector would not necessarily improve its average earnings. The second main finding is that the population effect is robust and significantly more important than wage or hours effects. This implies that the main source of disparity between the two populations is pre-market (education opportunities) rather than on-market.Chinese labor market ; earnings differentials ; migration ; discrimination