provincial inequality and changes in the distribution of subsidies, while, at the same time, wage income became more unequalizing.8
Table 1 clearly shows that inequality levels are quite substantially over-evaluated when price differences are not taken into account. Indeed, inequality computed from non-deflated income is between 7% and 20% higher than that observed for deflated income.9 This issue, which has already been documented by Benjamin et al. (2005a)10 and Benjamin et al. (2005b)11 on different periods and databases, is confirmed here for urban household disposable income using the CHIP data. It provides per se a major motivation to use regional price deflators in any analysis of income inequality in China.
Moreover, Table 1 stresses the dynamics of the over-evaluation phenomenon. Indeed, not only can the levels of inequality usually presented in the literature be misleading but evaluations of inequality changes may also be substantially biased. For all inequality indexes considered here, the magnitude of the bias substantially decreases between 1988 and 1995, leading to a potential under-evaluation of the magnitude of the increase in inequality over this period.12