The Impact of the County‐to‐District Transition on Rural Consumption Inequality in China

Does local urbanization, primarily in the form of converting counties to districts as promoted by the Chinese government, alleviate the consumption inequality among rural residents in China? First, the theoretical analysis of the impact mechanism of county‐to‐district conversion on consumption inequality is conducted. Second, macro‐level statistical data at the county level are merged with micro‐level survey data from the China Household Finance Survey (CHFS) to construct a four‐period unbalanced panel database composed of macro statistical data from 281 districts (county‐level cities) and micro survey data from 25,744 rural households. Finally, a multi‐period difference‐in‐differences model is used to empirically analyze the impact of local urbanization, mainly in the form of county‐to‐district conversion, on the micro‐level consumption inequality of rural residents. The results indicate that the county‐to‐district conversion policy significantly alleviates the consumption inequality among rural residents. Mechanism analysis shows that county‐to‐district conversion narrows the consumption inequality among rural residents through income effects and peer effects. Heterogeneity analysis indicates that the county‐to‐district conversion policy significantly alleviates the consumption inequality of rural households, with a more pronounced effect on households with middle and low‐income levels and those with household heads having lower levels of education. From a regional perspective, the county‐to‐district restructuring exacerbates consumption inequality in areas with higher economic development levels, while it alleviates consumption inequality in regions with medium to high levels of financial development. Based on these findings, relevant policy implications are thus proposed.