Abstract

In 2018, China's GDP exceeded 90 trillion yuan. Since 2010, China has become the second largest economy in the world. But at the same time, in the process of market economy development, China also has some common problems, the most prominent one of which is the ever－growing gap between the rich and the poor. A number of institutions and scholars claimed that the income gap in China in terms of Gini coefficient has gone beyond the international safety range and will be harmful to the health of the future sustainable development. China's income gap is reflected in numerous aspects:the income gap between individuals, the income gap between regions, the income gap between industries and the income gap between rural and urban areas. Among all of which the most prominent and urgent one is the income gap between urban and rural areas. The formation of China's income gap between urban and rural areas has also produced many negative effects, hence the excessive income gap between urban and rural areas needs to be eased. The realization of Chinese Dream－building a harmonious society, building a well－off society in an all－round way and realizing the great rejuvenation of the Chinese nation－is an important goal of China's economic and social development. The Chinese government and the public have been striving hard toward these goals under the leadership of the CPC central committee. In recent years, with Xi Jinping playing the core role in the leadership of the CPC central committee, local governments at all levels have attached great importance to the rural poverty problem, formulated the“poverty alleviation”precisely and put forward the“rural revitalization strategy”, but due to historical and institutional factors, the implementation of common prosperity in China, the process of building a harmonious society, is faced with many obstacles. Especially the various contradictions and conflicts caused by the large income gap lead to the reality that may deviate from the expected goal in the process of China's economic development.

China's urban－rural gap has existed since the founding of the People's Republic of China. Faced with the complicated international environment after the founding of new China, the central government adopted the strategy of giving priority to the development of heavy industry and achieved the goal of transferring rural surplus to cities through a series of systematic designs, which formed the root of the urban－rural gap in China at the beginning. With the rapid development of China's economy, some deep－seated problems are gradually exposed, among which the widening income gap between urban and rural areas has become a matter of great concern to all sectors of society. After the reform and opening up, the gap between urban and rural areas in China has gradually evolved under the guidance of the spirit of“giving priority to efficiency and fairness”in the reform of market economy and the strategy of urbanization. However, overall, China's current urban－rural income gap is still far from the ideal level. According to the calculation of the income gap between urban and rural areas in China, the income ratio of urban and rural residents in China was 2.57 in 1978, narrowed to about 1.8 in 1984, but then continued to rise to the highest point of 3.3 in 2009, maintained above 3.0 until 2013, and then began to decline to 2.69 in 2018.

Excessive income gap between urban and rural areas has become a major obstacle to China's economic development and a source of increasingly intensified social contradictions. Therefore, people from all walks of life pay close attention to it, and finding out the main causes of the income gap between urban and rural areas in China plays an important role in the government's scientific formulation of policies to alleviate the income gap between urban and rural areas. The research on the income gap between urban and rural areas is also a hot issue in academic circles. Scholars have conducted qualitative and quantitative researches on the main causes and influencing factors of the income gap between urban and rural areas from different levels, and tried to put forward some effective and feasible measures to alleviate the income gap between urban and rural areas. The formation of urban and rural income gap has become the most concerned issue in academic circles. Scholars agree that the formation of urban and rural income gap is mainly caused by institutional factors, among which urban biased social and economic policies and distorted commodity and production factor markets are the most important causes.

Since the reform and opening－up policy was carried out in 1978, China's decentralization reform, mainly showed in the rural household contract responsibility system, has gradually let go of the development of private economy. Decentralization reform, the separation of the fiscal and taxation system of state－owned enterprises, and other reforms took place in other social and economic fields, but the influence of the separation of the fiscal and taxation system reform is the most profound. Due to the decentralization reform of the fiscal and tax system, local governments have gained great autonomy in fiscal expenditures. When local governments have independent interests, they will use more fiscal funds to meet their own needs. With fiscal power being decentralized, the political power maintained centralized at the same time:the central government still has the absolute power of appointing and removing officials at local governments. Regarding economic growth as the main evaluation index of the performances, the local government officials, out of their own interests and requirements of promotion, tend to be more inclined to use fiscal funds for economy. Consequently, the financial resources allocation between rural and urban is more inclined to cities, leading to the urban bias in fiscal policy. On the one hand, rural residents are relatively more heavily burdened than urban residents, leading to their actual income decreases. On the other hand, in public services such as basic education, health care and social security, because farmers are unable to enjoy the same national treatment as urban residents, the basic publicservice enjoyment of rural residents also lags behind those of the urban residents on human capital accumulation, leading to human capital differences between urban and rural residents, which eggs on the further widening income gap.

Chinese local governments have more financial autonomy under the separation of fiscal powers, the interests of the local government is an independent subject in the role of financial and political incentives, leading to the fact that urban areas are more likely to be favored in local government financial behavior. This caused direct or indirect influences on the income of urban and rural residents and eventually led to the expansion of urban and rural income gap. Therefore, it is of great practical significance to study the influence of local government fiscal expenditure on the urban－rural income gap under Chinese decentralization reform. In view of this, based on the background of Chinese－style decentralization, this book studies the practical logic of local government behavior choice under the decentralization system. Through empirical research, it finds out the practical impact of local government fiscal expenditure on the urban－rural income gap, and tries to put forward effective policy－making suggestions. This is the background and inspiration of this book. The study of this book can straighten out the theoretical and logical relationship and practical influence between China's local fiscal expenditure and the urban－rural income gap, which has important theoretical and practical significance. From the perspective of theoretical significance, firstly, it analyzes the logical relationship between Chinese decentralization－local government behavior－local fiscal expenditure from the theoretical perspective, and analyzes the internal causes of Chinese local fiscal expenditure bias. The second is the theoretical analysis of China's local fiscal expenditure on the income gap between urban and rural internal mechanism. From the perspective of practical significance, the first is to empirically measure the income gap between urban and rural residents in China and its changing trend from two dimensions of time and space, revealing the essence of the income gap between urban and rural residents in China in a more comprehensive way. The second is to describe the bias of local fiscal expenditure in China, make an empirical investigation and thoroughly analyze the reasons, which is helpful to discovering and understanding the current situation and main problems of local government fiscal expenditures in China. Thirdly, the book makes an empirical analysis of the real impact of Chinese local fiscal expenditure and its bias on urban－rural income gap, and clarifies the real relationship between Chinese local fiscal expenditure and urban－rural income gap and the mechanism of its impact. Fourth, combined with the current situation of China's local fiscal expenditure and the need to narrow the income gap between urban and rural areas, this book systematically analyzes the general idea, basic path and specific measures of China's local fiscal expenditure reform, and puts forward specific countermeasures and suggestions.

The key issues studied in this book are:“seriousness of the income gap between urban and rural areas”, “the inner working mechanism of relationship be tween local financial expenditure and the urban－rural income gap”, “the influence degree of the local fiscal expenditure on the income gap between urban and rural areas”, “the reform direction and measures of China's local fiscal expenditure”. Based on the research to solve the main problems, the main content of the book to study are as follows：

Chapter 1 is the general introduction. Firstly, the background, theoretical and practical significance of this book are expounded and explained. Secondly, it sys tematically combs and summarizes the domestic and foreign literatures relating to the study of this book. On the basis of absorbing the existing research results and combining with the research purpose of this book, it establishes the logic system and basic structure of the study of this book. At last, the author expounds the research content of this book and introduces the main research methods.

Chapter 2 talks about the income gap between urban and rural residents and the basic theory of fiscal expenditure. In order to meet the research needs, this chapter systematically combs and elaborates the core concepts and theories related to the research problems of this book, laying the basic theoretical foundation for the research of this book. First, on the basis of defining the concepts related to urban and rural income gap, the core theories related to urban and rural income gap are expounded, and the measurement indexes and methods of urban and rural income gap are introduced. Secondly, the concept related to local fiscal expenditure is defined, and the basic theory related to fiscal expenditure is expounded. Finally, this paper expounds the basic theory of the influence of fiscal expenditure on the income distribution among urban and rural residents, and analyzes the relevant theories of the influence of local fiscal expenditure on the income gap between urban and rural residents.

Chapter 3 is about the measurement of urban and rural income gap in China and the reasons for its formation. Firstly, the income sources of urban and rural residents in China are analyzed and the relationship between urban and rural residents' income and national income distribution is discussed. Secondly, the overall situation and the changing trend of urban and rural income gap are calculated and analyzed, and the urban and rural income gap in China is calculated systematically from the perspectives of space and structure. Finally, the paper analyzes the main reasons of the income gap between urban and rural areas in China, including theoretical explanation, practical factor analysis and institutional analysis.

Chapter 4 focuses heavily on Chinese local fiscal expenditure bias and its causes. Firstly, the bias of local fiscal expenditure in China is described based on the two levels of budgetary and extra－budgetary fiscal expenditures. Secondly, the paper makes a realistic investigation of the bias of Chinese local fiscal expenditure by using relevant data, verifying the existence of the bias of Chinese local fiscal expenditure and depicting its degree quantitatively. Finally, the political and economic analysis of the causes of the formation of the local fiscal expenditure bias in China is discussed comprehensively and thoroughly.

Chapter 5 is the theoretical analysis of the relationships among fiscal decentralization, local fiscal expenditure and urban－rural income gap. Firstly, this chapter reviews the theory and practice of fiscal decentralization, elaborates on China's experience and analyzes the mechanism of the impact of fiscal decentralization on local government behavior. Secondly, it studies the influence of Chinese local fiscal expenditure on the income distribution of urban and rural residents from a theoretical perspective. Finally, it discusses the inner mechanism of the influence of local fiscal expenditure on the income gap between urban and rural areas.

Chapter 6 is the empirical analysis of the impact of local fiscal expenditure on the urban－rural income gap, reexamining the previous theoretical and practical analysis conclusions. Based on the previous theoretical analysis and realistic description, this chapter makes an empirical analysis of the relationship between the local fiscal expenditure and the income gap between urban and rural areas by using the provincial dynamic panel data and corresponding measurement methods. Empirical study mainly focuses on local fiscal expenditure scale, agriculturesupporting expenditure, education expenditure, expenditure on health and social security spending, studying the impact on the income gap between urban and rural areas to identify the size of the local fiscal expenditure in China as well as different projects and the income gap between urban and rural areas, and explaining the related empirical research results.

Chapter 7 covers the research conclusions and countermeasures. First of all，on the basis of theoretical, practical and empirical analysis and measurement in the preceding parts of this book, the author combs and summarizes the specific conclusions on the relationship between local fiscal expenditure and urban－rural income gap in China and the formation of the influence degree. Then, based on the research conclusion of this book and the actual situation of our country, this chapter systematically analyzes how to improve the fiscal expenditure policy in order to narrow the income gap between urban and rural areas, and puts forward reasonable and feasible policy－making suggestions.

This book conducts an in－depth and systematic study on the relationship between local fiscal expenditure and urban and rural income gap in China from the perspectives of theory, reality and demonstration, and the following basic conclusions are drawn through our research:First, through the measurement of the urban－rural income gap in China, China's overall trend of widening income gap between urban and rural areas and differences between eastern, central and western regions are clearly made out. The smaller the income gap between urban and rural areas is, the more developed economy in this area is; the more backward the area's economy develops, the greater income gap between urban and rural areas produces. The western region is the biggest contributor to China's urban－rural income gap, but it is also found that China, especially in underdeveloped regions, will tend to narrow the income gap between urban and rural areas along with the social and economic development, with the help of poverty－alleviation and agriculture－supporting policies established and enforced. Second, the present situation of China's local fiscal expenditure is investigated and it is found that there is a general bias of China's local fiscal expenditure, mainly manifested as economic bias and urban bias, and there is a bias of both budgetary and extra－budgetary expenditures, but the bias of extra－budgetary expenditure is more obvious. Third, through the theoretical analysis of the relationship between China's local fiscal expenditure and the income gap between urban and rural areas, this study explains the internal mechanism of the impact of China's local fiscal expenditure on the income gap between urban and rural areas. Fiscal decentralization system of local government behavior has distorted incentives, resulting in the bias of local fiscal expenditure, financial expenditure of the bias through the impact of urban and rural residents in primary distribution and redistribution. It also leads to the residents' income gap between urban and rural areas, but different fiscal expenditure projects have different influence on different sources of income of urban and rural residents. Fourth, the empirical test of China's urban and rural income gap and its influence on the reality of local fiscal expenditure indicates that the local fiscal expenditures expanded the income gap between urban and rural areas in China, and through the different projects of fiscal expenditure of urban bias of empirical research on the influence of income gap between urban and rural areas, it is concluded that urban bias of fiscal expenditure has expanded the role on the income gap between urban and rural areas, and the degree of influence is bigger.

Through the study of conclusions, we believe that the local fiscal expenditure narrowing the income gap between urban and rural areas has important practical significance. Based on working out the influencing mechanism of local fiscal expenditure on the income gap between urban and rural areas, combining China's practical problems existing in the current local fiscal expenditure, we put forward the reforming scheme of local fiscal expenditure. We believe that the reform of local fiscal expenditure in China requires clear thinking and institutional improvement at both macro and micro levels. The corresponding suggestions are as follows:First, we should clarify the general idea of China's local fiscal expenditure reform, and we should think from the two aspects of institutional reform and specific fiscal expenditure structure adjustment, so as to truly change the imbalance of China's local fiscal expenditure structure, improve the fairness of income distribution of urban and rural residents, and narrow the income gap between urban and rural areas. On one hand, through the reform of government governance concept, political system and fiscal system, we can change the distorted incentives, generated by the current decentralization system, of local government behaviors and change the practical defects of current Chinese local fiscal expenditure bias. On the other hand, we need to reform the scale and structure of local fiscal expenditure, including the establishment of a mechanism for reasonable growth of local fiscal expenditure, a mechanism for dynamic adjustment of fiscal expenditure structure, an evaluation mechanism for fiscal expenditure efficiency and an accountability system, so as to ensure the efficiency of fiscal fund allocation and use. Second, specific suggestions are put forward for the reform of local fiscal expenditure in China, including the establishment of a mechanism for reasonable growth of local fiscal expenditure, a mechanism for balanced distribution of public resources, a reasonable distribution of fiscal expenditure among different projects, and a reasonable distribution of different projects between urban and rural areas. Third, it puts forward suggestions on how to improve the efficiency of China's local fiscal expenditure, and puts forward specific suggestions on the allocation and use of fiscal expenditure.

To sum up, through the study in this book, we hopefully strive to analyze the relationship between China's local fiscal expenditure and the urban－rural income gap systematically. On the basis of clarifying the current situation of China's urban－rural income gap and the current situation of local fiscal expenditure, we will explore the mechanism of the impact of China's local fiscal expenditure on the urbanrural income gap and the transmission mechanism of reality, so as to provide theoretical and practical guidance for China's local fiscal expenditure reform aimed at narrowing the urban－rural income gap. Due to various factors, both theoretical research and empirical research have some defects. However, the study in book only serves as a lead－in for more follow－up researches, and any criticism and correction from peer experts, scholars and readers is greatly welcomed and appreciated.

Key words:Fiscal Decentralization; Local Fiscal Expenditure; Bias; Urban－Rural Income Gap