Effects of Public Transfers on Income Inequality and Poverty in Rural China

This study examines the impacts of public transfers on income inequality and poverty reduction in rural China. It uses nationally representative rural household surveys from the China Household Income Project and classifies public transfers into three types - universal, pro-poor, and reimbursable transfers - to compare the impacts of each type of public transfer in 2013 and 2018. Estimated results show that the contributions of each type of public transfer to reducing income inequality were generally small in both 2013 and 2018. However, the effects of reimbursable transfers were the largest of the three types. We also found that the poverty-reducing effects were the largest for reimbursable transfers, and their impacts have considerably improved in the western region. The impacts of pro-poor transfers were intermediate but have developed notably in the central region. These findings suggest that reimbursable and pro-poor transfers contributed mainly to reducing rural poverty but the impacts were heterogeneous among regions.