Can place-based policies reduce urban-rural income inequality? Evidence from China's Old Revolutionary Development Program based on county-level data

Reducing urban-rural income inequality (URII) is a prerequisite in promoting people's welfare and realizing sustainable development for many developing countries. However, virtually little is understood about how place-based policies affect URII. To fill this void, we utilize China's Old Revolutionary Development Program (ORDP)-a large-scale and novel type of place-based policy targeted at undeveloped regions, as a natural experiment and use the time-varying difference-in-differences (DID) model to evaluate the effect of ORDP on URII and further investigate its potential mechanisms and heterogeneity effects. The panel data covering 613 Chinese counties from 2010 to 2019 are used. Our results show that ORDP can lead to an average of 11.2% decrease in URII, but this effect takes a period to emerge. Mechanism analysis presents that ORDP mitigates URII chiefly through government intervention and financial development. Further heterogeneity analysis casts light on the fact that ORDP exerts a greater role in alleviating URII in old revolutionary counties that are located in western and central China compared to those located in eastern China. Additionally, the effect of ORDP on URII is greater in undeveloped counties compared with developed counties. Our findings provide enlightenment for the government in China and other developing countries on how to mitigate URII through well-designed place-based policies.