Leveraging Inclusive Finance to Reduce Urban-Rural Income Inequality: Empirical Evidence

The transition from a planned to a market economy has brought about significant economic growth and improved living standards in China. However, it has also led to the widening of the income inequality between urban and rural areas. As urbanization accelerated, disparities in access to financial services became more pronounced, exacerbating the income gap. This paper will explore the influence of inclusive finance on the urban-rural income inequality in 31 provinces from 2018 to 2022 in China through panel modeling, the variational coefficient method, and the Euclidean distance method. The results show that, firstly, inclusive finance narrows the urban-rural income inequality; secondly, several factors significantly contribute to narrowing this gap,including the number of employees in financial institutions, the density of business outlets, insurance density, and the development level of digital inclusive finance; thirdly, while enhanced economic development and an increased share of total imports and exports in GDP help reduce urban-rural income inequality. A higher proportion of public financial expenditure in GDP, and greater contributions from the industrial and service sectors to economic growth widen it.