Discussions And Tests On The Public Ownership Income Distribution Inverted U Hypothesis

More than three decades of reform and opening up, China’s economicdevelopment has made remarkable achievements in economic growth rate reaching anaverage of10percent, much higher than the average annual growth rate of3.3percentin the world economy over the same period, to become one of the fastest growingeconomies in the world. Although the "China miracle" has rejoiced us, at the sametime, we must also note that the income inequality gradually presents the trend ofwidening-up. The theoretical model to explain the different trends of the Chineseresidents’ income inequality is a weakness in the study of Chinese Residents’IncomeDistribution, but the Public Ownership Income Distribution(POID) Inverted Uhypothesis has made a positive exploration. The paper briefly describes the corecontent and the basic conditions of POID Inverted U hypothesis, then discusses andtests the theory from four aspects: the first is the impacts of economic developmentfactors on income inequality, the second is the impacts of structural reform etc.factors on income inequality, the third is the change trajectory of the Chineseresidents’ income inequality, the fourth is Chinese residents’ income distributionpattern.Among them, the Chapter3focuses on analysis and study about the impacts ofwithin the department of labor, the remaining/livelihoods, the two departments andtheir conversion on income inequality; the Chapter4focuses on analysis and studyabout the impacts of capital accumulation, government policies, structural reform etc.factors on income inequality, which also focusing on the theoretical and empiricalimpacts of decentralized structural reform and fiscal decentralization reform on theincome inequality between urban and rural; the Chapter5based on the review of teststudies of POID Inverted U hypothesis in China, gives a detailed description aboutthe trends of within the urban, rural internal, between urban and rural and the nationaloverall income inequalities in China since the reform and opening up, and a simpleprediction of Chinese residents’ income inequalities in the next few years; the Chapter6portrays the status of Chinese residents’ income inequality from the perspective of income distribution pattern, trying to build the Chinese ideal pattern of incomedistribution. From the perspective of constraints and trajectory of Chinese residents’income inequality in the above chapters, the paper discusses and tests the POIDInverted U hypothesis, and the main conclusions include:First, the POID Inverted U hypothesis is a new model of public incomedistribution, creative and having academic value. The Chinese economy is still apublic dominant or main-type of economy, and thus the POID Inverted U hypothesishas a basic value, that is, at this stage the only effective income inequality model.Referring to the factors that affect the residents’ income inequality, there arefundamental differences between public economy and private economy, and there arealso important differences between POID Inverted U theory and Kuznets Inverted Utheory, not to be confused.Second, the difference of labor, labor supply and demand, the remaining/livelihoods will make the income inequality first increase and then decrease in thelong term, and now its impacts on Chinese residents’ income inequalities are still inthe expansion stage. Both internal income inequalities within the agricultural sectorand non-agricultural sector, the impacts on income inequality first increase and thendecrease, and the income inequalities within agriculture and non-agricultural sectorare still in the rising stage. China has still serious urban-rural dual structure, soincome inequality between urban and rural are the basic factors of the overallinequality, and at the same time, the demographic transition and the urbanizationbetween the two departments lead to the persistence and expanding of Chineseresidents’ income inequality as an important factor.Third, capital accumulation in the public sector is conducive to narrowing theincome inequality, but its effect is offset by the expansion effect of private andpersonal capital accumulation, property accumulation effect has gradually become animportant factor in the expanding Chinese residents’ income inequality. The impactsof different government policies on residents’ income inequality in China aresignificantly different, especially fiscal and tax policy change is not obviouslynarrowing income inequality, and government spendings affect income inequalitybetween urban and rural residents by increasing income levels, but the impacts of different kinds of expenditures on income inequalities are not the same. Theintroduction of structural reform usually has the traits of stages and overall, makingChinese residents’ income inequality showing the expansion of the “ladder”.Fourth, the impacts of decentralization structural reform on income inequalityare mainly reflected in the urban-rural income inequality, in particular, achievedthrough the impacts on rural economic development. The collective-farmersdecentralization in the early stages of reform has a huge role in promoting China’srural economic development, narrowing the income inequality between urban andrural as urban reform has not yet started to; the local government-townshipenterprises decentralization makes township enterprises gain greater businessmanagement autonomy and then has played a major role for the promotion of China’srural economy, which can not be ignored. Administrative decentralization involvingcentral and local government plays an active role in the development of China’s ruraleconomy, but also has negative impacts, and thus its impacts on the urban-ruralincome inequality work in both positive and negative directions.Fifth, reform of the fiscal decentralization system makes the degree of fiscaldecentralization increase, leading to a significant expansion of urban-rural incomeinequality, on average, the country’s degree of fiscal decentralization increase onestandard deviation, urban-rural income inequality will rise from0.127to0.325. In1994, after the implementation of the tax system reform, the impacts of fiscaldecentralization on the urban-rural income inequality significantly increased, and thiseffect during the tax system reform peroid was slightly larger than the tax systemadjustment period. In different periods of the fiscal decentralization reform onurban-rural income inequality, the east and the west is always greater than the countryas a whole and the central. The empirical study in the paper also shows that fiscaldecentralization will affect the urban-rural income inequality through the scale ofgovernment spending, the fiscal expenditure structure, the efficiency of resourceallocation, and there are also significant differences in the mechanism through whichfiscal decentralization affect the urban-rural income inequality in the eastern, centraland western.Sixth, the Chinese residents’ income inequalities is now gradually increasing along the first half of the POID Inverted U hypothesis, and the structural reformmakes it show the characteristics of the " ladder-shaped", but the upward trend hasbegun to slow down, expected as the POID Inverted U hypothesis. Strucral reformand government policy have important influence on the income inequality, but theirimpacts cannot be immediately reflected in changes in the income inequality. Theincome inequality within China’s urban and rural residents in next few years maycontinue to expand, but due to the income inequality between urban and rural areasmay be gradually reduced, the maximum contribution rate of the overall incomeinequality, could lead to the inverted U-curve inflection point of the overall nationalincome inequality POID Inverted U curve.Seventh, as is expected to be basically the same as POID Inverted U theory，thepattern of income distribution in China has experienced the evolution from theaverage structure to the structure of pyramid, and the current pattern of incomedistribution also reflects the pagoda features, and quick dual structure conversionmakes the pattern of income distribution of some provinces and municipalities showgourd-type characteristics; Characterizations of the income distribution pattern of theUnited States and other developed countries show the pattern of a higher stage ofeconomic development, as the proportion of middle class increases and the incomegap narrows, the income distribution pattern will show some olive characteristics.After this stage, due to the major impacts of the economic structure, policy andinstitution, the pattern of income distribution may not be consistent to maintain olivecharacteristics, but there will be changes. Now Chinese residents’ income level is nothigh, to realize the evolution of the olive pattern of income distribution, China is stillfacing serious challenges, and should maintain sustained and rapid economic growth,and greatly enhance the level of economic development, but also deepen the reformof the income distribution system, vigorously readjust the pattern of incomedistribution.The main innovations of this paper include: First, make a comprehensive andsystematic discussion and validation of POID Inverted U theory for the first time;Second, research and predict various components of income inequality frommulti-dimensional perspectives; Third, supplement and enrich the study on China’s income inequality trends from another point of view, that is the pattern of incomedistribution of absolute income levels and the proportion of people; Fourth, use avariety of research methods to study the income inequality trends in China; Fifth,give a theoretical and empirical research on the relationship between fiscaldecentralization reform and the urban-rural income inequality; Sixth, analyse the keyand difficult points of the income distribution system reform, put forward specificpolicy recommendations to deepen fiscal system reform, and the "inclusive growth,inverted U-buck" strategy to build the ideal distribution pattern.