Title

No.68-Estimate the Income Inequality using Engel Curve Approach

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2017/9/8 2:41:57

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struggle12

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Introduction

Adopting a simple demand system, we aim to re-estimate China.s income inequality using the Urban Household Survey (UHS) data assuming the expenditure data is well measured. We .nd income inequality growth exceeds the growth rate of consumption inequality, although income inequality is still lower than consumption inequality over the period 2003-2009. We also .nd that the increase of income inequality is mainly due to the increase of inequality between the middle expenditure group and the high expenditure group, while the income inequality between the middle-expenditure group and the low-expenditure group slightly decreases. This not only con.rms the presence of pervasive grey income, also implying that grey incomes mostly exist in the high-expenditure stratum. Following Aguiar and Bils (2015), we assume that the Engel coe¢ cient is log-linear and that the income elasticities are constant over time. In the robustness test, we relax the assumptions and .nd that the estimation results are still robust.

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