Reforms on county-level fiscal governance in China: impact on urban-rural income inequality

The latest fiscal reforms in China have been on the county level and bundled both fiscal decentralization and fiscal spending. The present study investigates whether such bundled fiscal reforms affected one important social dimension: urban-rural income inequality. Using quasi-experimental data, the study shows that fiscal decentralization benefited only urban residents and that fiscal spending promoted income growth for both urban and rural residents, though growth velocity slowed down over time. Together, the bundled fiscal reforms saw disparate impact on urban and rural residents, with positive effects on rural income growth and negative on urban peers. The latest fiscal reforms did not enlarge urban-rural income inequality and even slowed down their growth velocity. The impact of fiscal reforms has been largely embedded into extant urban-biased institutions and questions the possible limits of state-led development policies. This study concludes by discussing policy and theoretical implications of research findings.