Urban-rural income inequality in China: new evidence from Input-Output Analysis

Abstract

Income inequality between urban and rural households is a severe problem in China. There are a variety of factors that can cause this urban-rural gap. This paper focuses on factor income inequality, more precisely in the labour compensation income received by urban and rural households at sectoral level (42 sectors) and considering the 31 Chinese provinces. The aim of this paper is to analyse to what extend China’s economic structure can reduce this type of inequality. I develop an extension of the Miyazawa model within a multiregional and multisectoral framework. I find that urban households always benefit more than their rural counterparts when treated by consumption stimulation tools. In the cross-regional analysis, I evaluate the internal effect and spill-over effect, showing the regions that benefit most from others’ consumption increase.