Social Benefits in Urban China: Determinants and Impacts on Income Inequality in 1988 and 2002

Qin Gao, Fordham University

This study provides the first set of empirical evidence on the determinants of social benefits received by urban Chinese families and their impacts on income inequality using the China Household Income Project (CHIP) 1988 and 2002 data. It finds that the urban total social benefits strongly targeted the bottom pre-tax pre-transfer income decile. Cash transfers were negatively associated with pre-tax pre-transfer income distribution in both years, while important in-kind benefits—namely health and food in 1988 and education in 2002—were positively related to pre-tax pre-transfer income levels. The presence of elder members and higher education levels were significantly related to more total social benefits. The urban social benefits played a significant role in income inequality reduction in both 1988 and 2002, but they were not able to close the rising income gap driven by growing market income inequality during the period. As a result, post-tax post-transfer income inequality level was still higher in 2002 than in 1988.