SPATIOTEMPORAL EFFECTS OF DIGITAL FINANCIAL INCLUSION AND FISCAL DECENTRALIZATION ON THE URBAN–RURAL INCOME GAP

Abstract

This study investigates the joint impact of digital financial inclusion and fiscal decentralization on the urban–rural income gap in China within a unified spatiotemporal analytical framework. Using provincial panel data and employing both two-way fixed effects and spatial econometric models, the analysis reveals that digital financial inclusion significantly narrows the urban–rural income gap by improving financial accessibility, reducing transaction costs, and promoting rural entrepreneurship, while fiscal decentralization tends to widen the gap due to local governments’ bias toward urban-oriented resource allocation. Importantly, the interaction between the two shows that fiscal decentralization strengthens the inequality-reducing effect of digital financial inclusion, suggesting a moderating role through enhanced incentives for local investment in digital infrastructure. Furthermore, spatial results indicate significant positive spatial dependence and spillover effects, whereby digital financial inclusion generates beneficial cross-regional impacts, whereas fiscal decentralization may intensify regional disparities through competitive dynamics. These findings are robust across alternative model specifications and variable measurements, offering important insights into the mechanisms of income distribution in the digital economy and providing policy implications for optimizing fiscal systems and promoting inclusive financial development.