The Income Gap Measurement, Decomposition, And Economic Growth

This paper is divided into five chapters, of which Chapter 1 is a introduction interpreting the background and content of this paper; Chapter 2 is a investigation of two commonly-used inequality measures: Theil index and Gini Coefficient, I briefly presented the calculation formula of Theil index and Gini Coefficient, then discussed the subgroup decomposition of Gini Coefficient deeply, Furthermore I demonstrated the discrete solution of a new Gini Coefficient's decomposition method developed by Cheng Yonghong (2006, 2007), and generalized this method to the instance of more than 2 subgroups.In Chapter 3 I calculated the decomposition of China's inequality from 1995 to 2006 with Theil index from four aspects which are rural-urban income inequality, rural-urban consumption inequality, property of employment, industry of employment, by the calculation we could get some new consequences, especially the effect and the trend of different factors mentioned above, and compare our results to some other scholar's research.Chapter 4 and 5 are dedicated to the problem of the nexus between inequality and growth. Of which Section 1 of Chapter 4 is a general review, we first briefly reviewed the evolution of income inequality vs. economic growth and the important literatures and thoughts on this subject since WWII, then focused on the thoughts and empirical studies on this subject after 1990s, including a few studies on China. Section 2 is an empirical study based on a panel data with provincial cross-sections of China, the time span is 1981-2006. Our study found significant negative correlation between development level and inequality on cross sections, but not on time series, namely no obvious Kuznets inverted U effect. The short-term increase of inequality has positive effect on economic growth, which is not that significant in 3 years lag, and the inequality level of 5 years lag has a more significant effect on growth, whereas the inequality initial condition is significant negative correlated with future long-run growth. We found that growth has an effect of reducing the contemporary inequality, and we consider there may be a tax distortion effect. Inflation is founded negative correlated to real economic growth, and we believe the correlation is nonlinear, the optimal inflation is about 1%. We found no significant conditional convergence in Chinese provincial growth, but first-mover advantage appears.In Chapter 5 we pointed out that the cause of the quite different research results about inequality and growth might be the usage of different data source and different model's setup, thus we employed an American Dataset and utilized several commonly-used models to avoid this problem, tried to figure out the impact of different model setups, we found no significant relationship in cross-section regress model, whereas the result of inter-episode panel model is significantly affected by the period fixed effects, if period fixed effects is not involved, then we found the initial condition of inequality is positive correlated to future growth, whereas we found inequality is negative correlated to future growth if period fixed effects involved. We tried to investigate the different effects between time-series and cross-sections of the regressor by decomposing them into general trend item and individual diversity item, and we found the effects are surely different between time-series and cross-sections, inequality promotes growth on time-series but retards growth on cross-sections. We consider this as a special economic phenomenon, namely the inconsistency of the whole and individual, see the paper for detail.