Decomposing income inequality and policy implications in rural China

Using village data from samples covering 6 provinces, 36 counties and 216 townships, the income inequalities within and between townships in rural China are assessed. The Theil index and the mean logarithmic deviation methods enable us to test income inequality at the township level, and to decompose it into intra-regional and inter-regional at county and provincial levels. In the present paper, we also decompose income inequalities between and within the nationally designated poor counties (NDPC). The results show that approximately two-thirds of the income inequality in rural China would be eliminated if measures and policies were targeted at the county level. This study also confirms the rationale that China's poverty alleviation strategy of focusing on poor counties based on the inequalities between NDPC and non-NDPC accounts for the most inter-province inequality.