Fiscal Policy and Social Equity: The Redistributive Effects of Government Spending on Inequality

The paper analyzes the redistributive impact of government expenditures on income inequality in Chinese provinces through a synthesis of fiscal incidence analysis, benefit incidence approaches, and panel econometric analysis. Based on provincial expenditure data for 2019-2021 and household-level inequality indicators, the analysis assesses the impacts of education, healthcare, social security expenditure, and intergovernmental transfers on driving market and post-fiscal income distribution. Findings indicate that the fiscal policy has a strong equalizing role in that the Gini coefficient of 0.467 (market income) is reduced to ‎‎0.414 when direct transfers are added and to 0.384 when in-kind education and ‎health benefits are subsequently added. The results of benefit incidence suggest ‎that education and healthcare expenditure are quite pro-poor, whereas social security-‎ty and welfare are almost neutral based on institutional fragmentation. Fixed-effects regressions establish the strong negative association between education ‎and health spending and inequality, and a weak and not statistically significant ‎association between welfare spending and inequality. Intergovernmental transfers ‎show the significant equalization effect, which displays the significance of central-local fiscal coordination. Taken together, the findings confirm the multi-‎channel ability of the Chinese fiscal system to diminish inequality, but also ‎point to the existence of structural constraints to redistributive possibilities, ‎notably in the welfare sector. Policy proposals aim at reinforcing human capital ‎expenditure, enhancing healthcare equity, reforming disjointed welfare, and allocating transfers to promote social equity‎.