Does population aging intensify income inequality? Evidence from China

Change in the population age structure affects the income inequality of an economy because income inequality often differs in different age groups. This paper proposes a theoretical framework to investigate the condition under which income inequality increases with demographic change and then proves that this condition is satisfied in China based on theory and empirical evidence. Accordingly, a hypothesis was developed, postulating that aging intensifies income inequality. We adopted the Gini coefficient as the measure of income inequality in an empirical study to test the hypothesis by using provincial panel data of China from 1996 to 2011. We determined that aging (represented by an increase in the elderly dependency ratio and decrease in the children's dependency ratio) increases income inequality significantly in current China. This finding suggests that the effect of aging on inequality be considered because it may have different policy implications.