Group-Specific Redistribution, Inequality, and Subjective Well-Being in China

Using survey data from the China Family Panel Studies (CFPS) from 2010 to 2018, this paper analyzes the relationship between income inequality, group-specific income redistribution, and subjective well-being among China's urban, rural, and migrant populations. Using narrowly defined reference groups, our findings suggest that within-group inequality does not significantly impact Chinese people. By contrast, a larger income gap between urban and rural residents is positively correlated with the rural residents' subjective well-being, which we interpret as a tunnel effect, i.e. a positive signal concerning their own future income. Compared to migrants, however, our results hint at a negative status effect for the rural residents. More importantly, the group-specific redistribution inherent in the Hukou system that widens the income gap between urban and rural residents makes rural residents worse off. The existing Hukou system thus fails to lend support to the 'harmonious society' development strategy of the Chinese government.