Social Expenditure and Income Inequality in Urban China

This paper studies the impact of social expenditure of provincial government on intra-provincial inequality using 31provinces'social-economic statistics in China from 2000to 2008.The conclusion is that the relationship between social expenditure and intra-provincial inequality is positive.We also find that,the stronger the fiscal decentralization,the larger the income gap.The increase of social expenditure size,however,could decrease the adverse effect of fiscal decentralization on income distribution.The stronger the social expenditure competition,the larger the income gap.The increase of social expenditure size could also decrease the adverse effect of fiscal competition on income distribution.The main theoretical contribution of the paper is to discuss the impacts of social spending on income distribution from the respective of the new political economics,and prove that the unequal allocation of social spending across income groups rather than the size of social spending is the main reason of income inequality.In accordance with these results,the paper suggests,it is necessary to correct the discrepancies in incentives mechanism for local governments,so as to bring social spending into full play in alleviating income inequality,thereby realizing the fair allocation of social spending.