Grassroots Democracy and Income Distribution: Evidence from Village Elections in China

Using village and household survey data collected from 48 villages of eight Chinese provinces for the period 1986 – 2002, this paper studies how the introduction of village election affects income distribution at the village level. We estimate both a static fixed-effect panel model and a dynamic panel model and take care of the endogeneity of the election. The result of the dynamic panel model shows that election has a direct (marginal) effect to reduce the within-village Gini coefficient by 0.033, or 11.8% of the sample average. We also find in dynamic panel models that election does not increase the level and the progressiveness of net transfer income received by households. On the other hand, we find that election increases per-capita public investment. So election’s positive role in reducing income inequality is not caused by pro-poor income redistribution, but by more public investment.