Is Capital Income Unfairer than Labor Income: Evidence from Inequality of Opportunity in China

Abstract

Abstract This paper provides a novel perspective to evaluate distributive justice in capital income. Using China Household Financial Survey (CHFS) data from 2013 to 2017, we estimate the inequality of opportunity (IOp) as a share of total inequality for both labor and capital income to determine its ethical fairness. This paper contributes to the literature on IOp by providing a novel perspective from income composition. It also updates the lower-bound of capital income (share) from the household level in China. We find that the distribution of capital income is actually less ethically offensive than labor income by about 50%, despite the more uneven distribution of capital income. The more polarized but fairer distribution of capital income is robust not only in alternative income proxy variables but also across hukou types and regions of residence. The gap between the IOp level in labor and capital income, however, is decreasing over time.