Factor Decomposition of the Changes in the Rural Regional Income Inequality in Southwestern Mountainous Area of China

Abstract

This study aimed to determine factors of rural income inequality changes in Aba Tibetan and Qiang Autonomous Prefecture, Sichuan, China, to help formulate measures to reduce regional inequality and alleviate poverty in the southwestern mountainous area of China, which experiences frequent natural disasters and poor living conditions. Changes in rural income inequality are examined, which are then decomposed into different component factors based on the Gini index. Income inequality is comprised of four types of income source: wages, household operations, properties, and transfers. This analysis focuses on the period of 2003 to 2011—a special transitional stage during which the Wenchuan earthquake intervened. The results indicate that income from household operations plays a dominant role in income inequality. Its contribution to the overall inequality fluctuates from 36.40 to 50.39% and had a positive effect on reducing inequality after the earthquake. Wage income contributed the second-most to income inequality and had positive and negative effects on reducing inequality before and after the earthquake, respectively. Transfer and property incomes are important forces in income inequality that have different influencing mechanisms. Transfer income positively helps reduce income inequality. Exclusive favors or preferences should be granted to such areas.