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This paper estimates income inequality in the People's Republic of China at the national, regional, and provincial levels using extrapolated unit-level household income data covering urban and rural populations of 23 provinces during 1990-2004. The estimates indicate that income inequality increased significantly during the last two decades, but the extent of the increases was lower than reported in most sources by about 20 percent when regional differences in cost of living are adjusted. The major sources of the increases in inequality were found to be within urban inequality and between urban and rural inequality, with their contribution increasing, respectively, from 15.7 and 12.0 percent in 1990, to 34.0 and 30.4 percent in 2004. The betweenregion and between-province inequality only accounted for 3.8 and 11.2 percent, respectively, in 2004.
I. INTRODUCTION
The continued high growth in the People's Republic of China (PRC) since it embarked on economic reforms in the late 1970s has been accompanied by rising income inequality. During 1985-2006, the country's real per capita gross domestic product grew at an annual average rate of 8.5 percent. The rapid growth led to an unprecedented reduction in the incidence of poverty, from 32.5 percent in 1990 to 7.1 percent in 2005, measured by the $l-a-day international poverty line (AIi and Zhuang 2007). However, the Gini coefficient of per capita income also increased, from about 0.30 in the early 1980s to about 0.45 in 2001 at the national level (Ravallion and Chen 2007).
The literature on income inequality in the PRC is extensive. Three types of data have been used by researchers: unit-level household survey data, aggregate income data, and grouped household survey data. Due to the absence of consistent data covering the entire PRC, studies based on unit-level data often focus on a particular segment of the population, such as urban households (Cao and Nee 2005, Meng 2004) or rural households (Gustafsson and Li 2002), for isolated years.1 Aggregate data, often at the provincial level, have been used to investigate the spatial dimension of inequality (Hussain and Zhuang 1994, Kanbur and Zhang 2005). More recently, attempts have been made to study the PRC's income inequality by extrapolating unit-level data from grouped household income data. Notable examples are Ravallion and Chen (2007) and Chotikapanich et al....