Digital Financial Inclusion and Income Inequality in China

This study examines the impact of digital financial inclusion on economic disparities both between and within provinces, as well as on household income inequality in China. The analysis draws on macro- and micro-level evidence, using provincial and prefecture-level data alongside household survey data from the China Family Panel Studies (CFPS), combined with the digital financial inclusion index developed by the Institute of Digital Finance (IDF) at Peking University and Ant Group. The study also explores the micro-level mechanisms through which digital financial inclusion influences income inequality, including the “innovation” effect, the “income boosting” effect, the “transformation and upgrading” effect, and improvements in the “efficiency of government welfare programs.”

The main findings in this paper have important policy implications for how to leverage digital financial inclusion to alleviate income inequality and promote sustainable growth in China.