A Study On The Relationship Between Fiscal Expenditure Structure And Urban-rural Income Gap

Since the policy of reform and opening was carried out,the GDP of our country has been continuously increased on high-speed. Meanwhile, Resident's income gap seems to be constantly widening. Resident's income gap in our country includes the income gap of urban residents, the income gap of rural residents and the income gap between urban and rural. Urban-rural income gap is the main reason which causes the resident's income gap. Market mechanism and the spontaneous forces of society cannot narrow income gap, so government policy is necessary for reduction of income gap. Adjusting income distribution is one of the basic functions of public finance. Timely adjustment to the size and structure of fiscal expenditure is an important means of regulating income distribution gap because fiscal expenditure is realization means and expression form of government policy. Based on this, this paper focuses on the relationship between fiscal expenditure structure and urban-rural income gap.This paper first analyzes the theoretical basis for financial expenditure regulating income distribution gap and mechanism of fiscal expenditure affecting on urban-rural income gap. And then we test the relationship between fiscal expenditure structure and urban-rural income gap by using stationarity test and cointegration test. Moreover we empirically analyze the fiscal decentralization's effect on fiscal expenditure structure of local government by using panel data model. The main conclusions drawn are as follows: (1)Raising the level of urbanization can narrow urban-rural income gap. The growth of china economic and a higher level of fiscal decentralization will enlarge urban-rural income gap.(2)The increase in public basic construction expenditure and expenditure for supporting agriculture can narrow urban-rural income gap. Fiscal expenditure in science, education, culture, public health as investment in human capital significantly is helpful to income levels of residents. Because of city-favorable problem, social security expenditure which is beneficial to social equity did not play the role of regulating urban-rural income gap. Instead, the increase in social security expenditure will expend urban-rural income gap. Administrative expenditure in our country also had a negative impact on urban-rural income gap. (3) Chinese-style fiscal decentralization led to distortions in the structure of local government fiscal expenditures. A higher level of fiscal decentralization urged local governments to increase expenditure on economic construction and reduce expenditure in science, education, culture, public health and agriculture.Based on empirical results, we propose some policy recommendations to narrow urban-rural income gap: (1) Reform performance appraisal system in order to reduce distortions in the fiscal expenditure structure of local government. (2)Increasing and optimizing fiscal expenditure for supporting agriculture to raise peasants' income. (3) Strengthening the financial support to establish social security system which covers rural region. (4)Modestly increase in fiscal expenditure in science, education, culture, public health and adjust the direction of expenditure.