Fiscal Supports To Peasants And Urban-Rural Income Gap

While China’s economy keeps a rapid growth rate, the urban-rural income gap becomes larger. The average annual income of urban residents is3.3times that of rural residents. In order to increase the income of rural residents, balance urban and rural development and solve the problems about agriculture, rural areas and peasantry. The No.1Documents issued by the central committee from2004to2010focused on agriculture, countryside, and farmer. At the same time, the government put a series of policies and measures aiming to increase peasants’ income. What is the reason for the widening of China’s urban-rural income gap? Why, in recent years, China’s fiscal policy did not reach the desired effect of narrowing the urban-rural income gap? To answer these two questions, it is critical to research the factors of China’s urban-rural income gap and evaluate the effect of fiscal expenditure policies. Since China has significant regional difference, the urban-rural income gap also shows regional difference. Investigating the factors of China’s urban-rural income gap from the aspect of regional difference will deepen the understanding of China’s urban-rural income gap. In addition, we will also consider the different effect of fiscal expenditure policies in three regions.Firstly, we construct a two-sector model including agriculture sector and non-agriculture sector. Through deduction, we get the income ratio between urban residents and rural residents. Combining with China’s actual conditions, we analyze the influencing factors of China’s urban-rural income gap. The enlarging urban-rural gap is due to the government’s urban-biased economic policies, which includes fiscal policy, financial policy, household registration system, price, and, land acquisition.Besides, the fifth chapter gives a statistical description and an empirical research on evaluating the effect of fiscal expenditure policies. Using the provincial panel data from2000to2009, we conclude empirical study that the local governmental expenditure significantly enlarges the urban-rural gap. The percentage of fiscal expenditure for agriculture can narrow the urban-rural gap, but the empirical results show it is not statistically significant. From the aspect of consumption disparity, both the local governmental expenditure and the percentage of fiscal expenditure for agriculture significantly narrow the urban-rural gap. The regression results also show that financial development has a positive effect on urban-rural gap, but the rural financial development efficiency has a negative effect. The difference of per capita investment in fixed assets, the difference of labor productivity, the degree of market-oriented, the price scissors between industry and agriculture, and land finance have positive and significant effects on the urban-rural gap. Urbanization and modernization can significantly narrowing the urban-rural gap. The regression results are different in three regions. In the eastern region and the western region, the local governmental expenditure significantly narrows the urban-rural gap. In the central region, the regression result is opposite.Finally, this paper proposed suggestions on the policies of narrowing China’s urban-rural income gap. It is crucial to reform the GDP-based political performance evaluation of local government. The government should raise the percentage of fiscal expenditure for agriculture, and ensure the implementation of policies supporting peasants. Raising the price of agricultural products, compensating more to peasants in the progress of requisition of land, promoting the transfer of the rural surplus labor, developing the rural finance, and improving the rural financial efficiency are good measures to narrow the urban-rural gap.