Social Security Expenditure, Demographic Structural Changes, and Urban-Rural Income Gap in China: Evidence from the Provincial Data

The continuously expanding urban-rural income gap is an indisputable fact during the rapid economic development in China. Accordingly, narrowing the urban-rural income gap is an important topic and considerable concern in the academic circles and practical field. To explore the causes of the urban-rural income gap, the influential effects of social security expenditure, demographic structural changes, and urban-rural income gap were analyzed using the fixed effect model of the cluster-robust standard errors and the provincial data of 341 samples which covered 31 provincial areas in Mainland China from 2006 to 2016. Results demonstrate that the growth of social security expenditure narrows the urban-rural income gap, and such effect has evident regional differences. The growth of social security expenditure in Western China further expands the urban-rural income gap owing to the urban bias of fiscal expenditure. In addition, the population aging expands the urban-rural income gap. The urbanization level has significantly negative effect in regulating the relationship between demographic structure and urban-rural income gap. In regions with low urbanization level, the population aging decreases the total social demands and increases the unemployment rate in rural areas, thereby further expanding the urban-rural income gap. The urban bias of social security expenditure further intensifies the urban-rural income gap. On the contrary, regions with high urbanization level have weak dual economic structure that weakens the positive impact of population aging on the urban-rural income gap. The obtained conclusions provide decision-making references for formulating social security and population intervention policy.