ABSTRACT
This chapter reviews the theoretical issues involved in the decomposition of the Chinese income distribution and provides a feasible decomposition by using the coefficient of variation. It demonstrates that the coefficient of variation has several merits over other income distribution measures in decomposition. The main reasons for the recent widening inequality are the intra-urban resident inequality and the rural-urban income disparity—the former of which is becoming increasingly significant. The chapter examines popular income distribution measures and suggests using the coefficient of variation, which possesses more desirable properties than other measures to decompose the Chinese overall income inequality. It shows that the coefficient of variation serves as a better measure to decompose the Chinese aggregate income inequality. The chapter argues that the coefficient of variation is additively decomposable in its square forms and that it nicely satisfies the IME decomposability. The results after decomposition provide a straightforward interpretation about how the inter-group and intra-group income inequalities affect the overall income inequality.
