The purpose of this paper is to apply a poverty level decomposition approach to decompose the poverty by income sources and investigate the impact of government transfers on income inequality and rural poverty.
This paper uses the decomposition method of inequality and the decomposition method of poverty level by resource endowments to decompose the overall inequality and the overall poverty by income sources.
It is found that unequal income distribution rather than income endowments is mainly responsible for the existence of poverty. Government transfers and relief income, aiming at the poor, help alleviate inequality and poverty, but are not targeting the poorest. Unequal distribution of production subsidies actually lead to higher poverty incidence.
This paper has revealed that the poverty issue cannot be resolved with economic development alone if the issues including the inequality in income distribution are not solved. It is important to make government transfers/subsidies pro-poor.
A poverty level decomposition approach is first used to decompose the poverty by income sources in China.
JEL Classification – O150, O530
The authors are most grateful for the financial support from the National Natural Science Foundation of China (71003106 and 71273281) and the Humanities and Social Science Fund from the Ministry of Education (09YJC790256).
Wu, H., Ding, S. and Wan, G. (2015), "Income inequality and rural poverty in China: Focusing on the role of government transfer payments", China Agricultural Economic Review, Vol. 7 No. 1, pp. 65-85. https://doi.org/10.1108/CAER-01-2014-0005
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