Partial Insurance and Aggregate Welfare in China, 1989-2009

We study the transmission of income to consumption inequality in China. We use panel data on diet from a nutrition survey and a measure of income with the full set of public and private transfers. We find growing like China means growing with more income risks and less consumption insurance. The transmission of permanent income shocks to consumption tripled from 1989 to 2009, when income risk roughly doubled in rural and tripled in urban areas. Our results have strong welfare implications across time and space. We call for the joint design of growth-enhancing reforms, risk stabilization and social insurance policies.