Capitalization of Productive Factors and Income Distribution Problems -Unraveling the Cruxof China’s Income Distribution Problems*

Zhang Juwei (张车伟) and Cheng Jie (程杰)
Institute of Population and Labor Economics, Chinese Academy of Social Sciences, Beijing, China

 
Abstract: When observing China’s income distribution problems from an international perspective, we find that China’s income inequality is not much different from developed countries after primary distribution. The real difference between China and developed countries is that income inequality in developed countries will reduce greatly after income redistribution while the income inequality remains the same for China. Therefore, one can conclude that income inequality in China derives from the ineffectiveness of redistribution. However, a large income gap is not the main reason for skewed income distribution in China. In fact, the problem lies in unfair distribution resulting from factor capitalization. A handful of people have taken proceeds from public assets at the expense of all the people, which has led to social polarization. To remove unfair distribution, China should improve its means of redistribution to narrow its income gap in order to develop a fair and reasonable pattern of income distribution.
Keywords: income distribution, capitalization of factors, unfair distribution, Gini coefficient.

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