Decomposition of China's Income Inequality, 1995-2006

This article uses relative entropy to give a simple demonstration of the Theil index, commonly used to calculate and decompose income inequality. A calculation and decomposition analysis of inequality in China from the four aspects of urban-rural income inequality, urban-rural consumption inequality, employers, and industries for the 1995-2006 time series. The results concern the magnitude of the factors affecting Chinese income inequality, the extent of the inequality, and long-term inequality.