Research On The Impact Of Financial Development And Fiscal Decentralization On Urban-rural Income Gap

Since the reform and opening up policy,China’s economy has developed rapidly,and the income of urban residents has risen continuously.The income gap between urban and rural residents continues to expand while the income level of residents increases.The Gini coefficient in recent years has been consistently higher than 0.4,which exceeds the threshold.The income gap between urban and rural areas continues to expand.It intensifies the social contradictions and diverges from the current development goals of building a well-off society in comprehensive manner,thus affecting the sustainable development of China’s economy and society.Therefore,narrowing the income gap between urban and rural areas is imperative.In recent years,the financial development and urban-rural income gap has been widely discussed.Under this background,this academic dissertation explored the effect of financial development on the urban-rural income gap in China’s fiscal decentralization system.In this study,the static and dynamic panel data models were developed by combining and analyzing the influence and mechanism of financial development and fiscal decentralization on the urban-rural income gap.Then,the effect of financial development and fiscal decentralization on the urban-rural income gap was further examined.The regression results are as follows:during the sample period for the entire country,fiscal decentralization expanded the income gap between urban and rural areas,and financial development under the change in fiscal decentralization significantly affected the narrowing of the income gap between urban and rural areas.From the perspective of regional heterogeneity,fiscal decentralization in the eastern and western regions led to the widening of the urban-rural income gap,but financial development under the fiscal decentralization system reform significantly reduced the urban-rural income gap.Conversely,in the central region,fiscal decentralization narrowed the urban-rural income gap,and financial development under the fiscal decentralization system reform expanded the income gap.Moreover,this study used panel cointegration to test whether financial development and fiscal decentralization have a short-term or long-term effect on the income gap between urban and rural residents.According to the analysis of the panel cointegration experience,in the short term,fiscal decentralization and financial development are not the main factors influencing the short-term fluctuation of the urban-rural income gap.Conversely,in the long term,fiscal decentralization significantly narrows the income gap between urban and rural areas,and the urban-rural income gap gradually expands because of the influence of financial development.According to the theoretical and empirical analyses of the research results,this dissertation puts forward corresponding countermeasures and suggestions.First,we should focus on adjusting the structure of the local fiscal expenditure and reform the financial system to clarify the supply-side reform.Second,we must strive to break the institutional barriers of urban and rural division,so that the achievements of financial development benefit the rural areas.Third,we need to improve the education development level of rural areas and increase the accumulation of human capital of rural residents.Finally,the government should formulate and implement corresponding policies according to the different development levels of the eastern,central,and western regions.