A provincial perspective on income inequality in urban China and the role of property and business income

•The contribution of non-wage income to inequality is different between provinces.•In the coastal provinces, the contribution of non-wage income is increasing.•In the western provinces, the role of wage income is larger than the other provinces.•The provinces with higher share of non-wage income have high income inequality.

This paper tries to investigate the role of non-wage income in explaining the income inequality in urban China. Our findings show that the contribution of income sources to inequality is different between the provinces with different extents of inequality. We find that in the coastal provinces, the contribution of wage income to inequality is decreasing, while the contribution of business and property income is increasing and getting more important; in contrast, in the western provinces, the role of wage income is larger than the other provinces, while the role of business and property income is smaller and remains unchanged. Our empirical results also suggest that the provinces with higher share of business and property income have high income inequality.