Abstract
China’s long term Gini coefficient is higher than the international warning line and the urban-rural income gap is still serious, meanwhile the transfer payments targeted adjusting the income distribution are increasing in recent years, which indicate that we should examine the impact of current transfer payment system on income gap. By choosing Develop-the-west Strategy that is a quasi-natural experiment and applying regression of discontinuity of location, using 1054 counties data of 15 provinces in Midwestern China from 2000 to 2007, we analyze the impact of transfer payments on urban-rural income gap in this paper. The results show that local government in western China paid more transfer payments than in the central region, however, the income gap between urban-rural residents in the western region increased by 20%. The widening effects are robust in different bandwidth situation such as distance or latitude and longitude. Meanwhile, the mechanism analyses find that urban residents benefit more than rural residents from transfer payments. Therefore, we believe that transfer payments should be more targeted to invest in rural areas, at the same time, the central government should rationalize the structure of transfer payments as soon as possible, and correct the urban bias and structure bias of local fiscal expenditure.
Highlights
China’s long term Gini coefficient is higher than the international warning line and the urban-rural income gap is still serious, the transfer payments targeted adjusting the income distribution are increasing in recent years, which indicate that we should examine the impact of current transfer payment system on income gap
The geographic information is used in the local polynomial RD model to analyze the impact of transfer payment on urban-rural income gap
The results show that transfer payment will expand the rural-urban income gap when regulating the equilibrium of regional finance
Summary
Empirical model and data description The empirical model Using OLS regression to analyze formula 12, the subscript i represents the country and t represents the year. Even if the observation point is reduced to the boundary line with 75 km, the coefficient is significant at 1% level, which is higher than that of the sample high away from the boundary line This indicates that the expanding effect transfer payment on income gap between urban and rural has limited significance in the Midwest boundary line. Yes (4) Less than 100 km 0.173*** (0.0510) Cubic 0.540 1048 Yes (5) Less than 75 km 0.189*** (0.0617) Cubic 0.545 850 Yes results, the factors have no significant differences in the Midwest region, which verifies the effectiveness of conclusion in this paper, Above all, this paper draws the conclusion that transfer payment contributes to the inequality of urban-rural income through the analysis of discontinuity regression of transfer payment on income gap between urban and rural. If the urban area is more sensitive to the transfer payment, local government may be weighted in the policy in order to expand the urban and rural income gap
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