China has recorded impressive growth over the past 20 years, with a commensurate increase in average living standards. However, there is mounting concern that increases in inequality indicate that many are being left behind and not sharing in the fruits of development. Indeed, most well-behaved social welfare functions rank unequal distributions below equal ones with the same mean income levels. An important question is whether recent increases in inequality are sufficiently high to offset general rises in average income: is rising inequality an uncomfortable but otherwise innocuous price to pay when the rising tide is raising all boats? Not necessarily, as there is additional concern that high levels of inequality may slow economic transition and hinder future growth. Our objective in this article is to fill in gaps in our understanding of inequality in rural China. The centerpiece of our work is a nationally representative household survey that has been collected by the Research Centre for Rural Economy (RCRE) under the Ministry of Agriculture in China continuously from 1986 to the present and that covers most of the reform period. By using a common household survey across years, we are able to address a number of important methodological and measurement issues associated with describing inequality at a point in time and comparing inequality across time periods. By employing additional, different data sets, we are also able to explore the sensitivity of our conclusions to the use of our primary data set. We further provide simple decompositions of inequality by space (village, province, and region) and source of income (e.g., farm and nonfarm) that yield important insights about the evolution of inequality. © 2005 by The University of Chicago. All rights reserved.
