Income inequality and rural poverty in China: Focusing on the role of government transfer payments

Abstract

Purpose

The purpose of this paper is to apply a poverty level decomposition approach to decompose the poverty by income sources and investigate the impact of government transfers on income inequality and rural poverty.

Design/methodology/approach

This paper uses the decomposition method of inequality and the decomposition method of poverty level by resource endowments to decompose the overall inequality and the overall poverty by income sources.

Findings

It is found that unequal income distribution rather than income endowments is mainly responsible for the existence of poverty. Government transfers and relief income, aiming at the poor, help alleviate inequality and poverty, but are not targeting the poorest. Unequal distribution of production subsidies actually lead to higher poverty incidence.

Research limitations/implications

This paper has revealed that the poverty issue cannot be resolved with economic development alone if the issues including the inequality in income distribution are not solved. It is important to make government transfers/subsidies pro-poor.

Originality/value

A poverty level decomposition approach is first used to decompose the poverty by income sources in China.

Citation

Wu, H., Ding, S. and Wan, G. (2015), "Income inequality and rural poverty in China: Focusing on the role of government transfer payments", China Agricultural Economic Review, Vol. 7 No. 1, pp. 65-85. https://doi.org/10.1108/CAER-01-2014-0005