Changes in Consumption Inequality in China

📖 The Scoop

The two decades after the beginning of the 1980s witnessed dramatic changes in the Chinese economy. At the same time, economic inequality increased substantially, as confirmed by many studies (e.g., Griffin and Zhao 1993; Riskin, Zhao, and Li 2001; Gustafsson, Li, and Secular 2008). Most studies of poverty and inequality are based on income measurements because income data have some advantages, such as easily accessible, comparable over time, and of high quality. But income is often underreported in surveys, especially for high-income groups. And because income varies over the life cycle of households, an estimate of income inequality at any time point may be an overestimate of longer-term income inequality. Blundell and Preston (1998) point out that measured income can be considered to be composed of both permanent and transitory income; thus households in a cross-section may appear to be income-poor only temporarily. Unlike expenditures, income is subject to short-term fluctuations because households can smooth away the latter by adjusting savings. Income inequality also increases within cohorts over time. Therefore, aggregate inequality will depend, in part, on the age structure of the national population and also on the pattern of intergenerational transfers.

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