Capital Income and Income Inequality: Evidence from Urban China

Using the urban household survey data collected by the National Bureau of Statistics of China from 1988 to 2009, this study examines the distribution, composition, and changes in capital income and its contribution to income inequality. The data shows that capital income has increased considerably in past 20years in urban China. Although the average value of capital income is still relatively low, the dispersion of capital income is significant, and for high-income earners capital income is substantial. Compared to other forms of income, capital income is distributed the most unequally, and its contribution to total income inequality has been growing. This study also examines capital income in China’s western, central, and eastern regions separately, and finds that capital income is highest and contributes the most to income inequality in the eastern region.