Does Income Redistribution Reduce Inequality of Opportunities? Evidence from China

Abstract

This paper investigates whether and how income redistribution in China affects inequality of opportunity (IOp), defined as the share of income inequality attributable to circumstances beyond individual control. Using nationally representative data from the China Household Finance Survey (CHFS) and employing an ex-ante parametric approach with Shapley decomposition, we analyze the effects of three redistributive channels: taxation, government transfers, and inter-household transfers. The results show that taxation modestly reduces both inequality of outcome (IO) and IOp. In contrast, government transfers, particularly pensions, increase IOp due to institutional segmentation associated with the hukou system. Inter-household transfers also contribute to higher IOp by reinforcing intergenerational advantages. Additionally, we find that the classification of pensions significantly alters the redistribution’s measured impact. When pensions are treated as deferred income rather than government transfers, the second distribution reduces IOp more substantially. These findings suggest that redistributive policy effectiveness depends not only on the magnitude of redistribution but also on its institutional design and classification logic. The study provides new evidence on how fiscal and informal transfers affect structural inequality and calls for greater conceptual clarity in redistribution evaluation frameworks.