The Research On How Local Government’s Fiscal Spending Affect The Urban-rural Income Gap

During both the process of the steady growth of Chinese economy and the rapid development of urbanization,the widening income gap between urban and rural areas has become a large hidden trouble in the sustainable development of China’s economic.And there is a close relationship between the widening urban-rural income gap and fiscal spending which tend to the urban areas since the reform and opening.Therefore,we need to study how local government’s fiscal spending affect the urban-rural income gap;As the interaction between areas has become more and more closely,we must consider the "spatial spillover effects" of fiscal spending,and then truly reflect the effects between the local government’s fiscal spending and the urban-rural income gap.First of all,this paper builds the theoretical mode to analysis how the local fiscal expenditure behavior affect the urban-rural income gap based on the cobb-douglas production function.The results show that when the spatial spillover effect of fiscal expenditure is positive,the relationship between urban-rural income gap and fiscal expenditure is inverted U-shaped.When the spatial spillover effect of fiscal expenditure is negative,the relationship between urban-rural income gap and fiscal expenditure is U-shaped.And the marginal effect changes with the spatial spillover effect of fiscal expenditure.Secondly,this paper tests the trend between the local fiscal expenditure behavior and the urban-rural income gap by using the nationwide provincial data from 1978 to 2014,the result shows that the spatial spillover effect of the local fiscal expenditure behavior is positive,and presents the "inverted U" relationship between the fiscal expenditure and the income gap which verify the correctness of the hypothesis.Finally,we test how the local fiscal spending influence the urban-rural income gap and measure the spillover effect of fiscal expenditure by the provincial data from 1998-2014 in the eastern,central and western regions.Look from these three regions,the influence of both the financial expenditure on education,health care,science,social security and technology on urban-rural income gap are different,some of them narrow the urban-rural income gap significantly,while others expend urban-rural income gap significantly or have no effect on the urban-rural income gap.Furthermore,these financial expenditure also have different spatial spillover effect.