Hidden Income in China and Its Implications

This article discusses the existence and quantity of hidden or “gray” income in China, its sources, and how it has contributed to domestic income disparity. Gray income is a serious threat to China’s economic and social development because it leads to unequal and unfair income distribution and weakened domestic demand, puts social stability at risk, and threatens to undermine future economic development. This article recommends a number of reforms to improve China’s budgetary and taxation systems as well as its government administrative system in order to build a more transparent and better-regulated national administrative framework. This article discusses the existence and quantity of hidden or “gray” income in China, its sources, and how it has contributed to domestic income disparity. The article suggests four major sources of gray income: tax evasion, income for which justification is unregulated, misappropriation of public resources, and rents from the abuse of government power. Gray income is a serious threat to China’s economic and social development because it leads to unequal and unfair income distribution and weakened domestic demand, puts social stability at risk, and threatens to undermine future economic development. This article recommends a number of reforms to improve China’s budgetary and taxation systems as well as its government administrative system in order to build a more transparent and better-regulated national administrative framework.