Income Distribution in China

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Using appropriate statistical measures, describe trends in income distribution. Discuss some of the main the causes and consequences of the trends identified and evaluate their importance |

Income Distribution In China |

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Introduction

A senior official said on March 9th that the Chinese government should exert more effort to reform the income distribution mechanism and bridge the nation’s income gap. Chinese premier Wen jiabao pledged on March 5th that the government would gradually increase the proportion of income individuals receive from the distribution of national income in his on china’s annual parliamentary session.

Income distribution is how a nation’s total economy is distributed amongst its population. Income distribution has always been a central concern of economic theory and economic policy. The distribution of income within a community may be represented by the Lorenz curve. The Lorenz curve is closely associated with measures of income inequality such as the Gini coefficient.

Lorenz Curve and Gini Coefficient

Lorenz curves are an effective way of showing inequality of income within and between countries. The X-axis shows the cumulative percentage of population; the y-axis shows the cumulative percentage of total income they receive. The 45-degree lines show the ‘line of perfect equality’. i.e.50% of population earns 50% of the income. The closer the Lorenz curve of area to the 45⁰ line the more equal the distribution of income is. In the case of the Lorenz curve in the diagram above 20% of the population earns 5% of the income. The more the Lorenz curve away from the 45⁰ line of perfect equality, the less equal is the distribution of income.

The Gini coefficient is usually defined mathematically based on the Lorenz curve. It can be thought of as the ration of the region that lies between the line of equality and the Lorenz curve (marked ‘A’ in the figure 2) over the total area under the line of equality (marked ‘A’ and ’B’ in...