Fleshing Out the Olive? On Income Polarization in China

In a rare example of a national goal for income distribution besides reducing poverty (for which there is broad consensus), China’s leadership has recently committed to expanding the middle-income share—striving for a less polarized “olive-shaped” distribution. Recognizing the potential trade-offs, we ask whether rising income-polarization in China was a by-product of past economic progress, including poverty reduction. The paper does not find robust time-series evidence of polarizing effects alongside either economic growth or population urbanization (including among those below the median). There was remarkably strong co-movement between polarization and inequality. Larger urban-rural gaps in mean incomes were strongly polarizing