Towards Sustainable Income Growth: Exploring the Impact of Digital Financial Inclusion on Household Income Based on Chinese Micro-Survey Data

Digital financial inclusion (DFI) can broaden financial access for households historically underserved by traditional finance, yet the magnitude of its effect on household income and the channels through which it operates remain underexplored. This study examines the causal effect of DFI on household income and its mechanisms. We match the Peking University Digital Financial Inclusion Index (2011–2023) with household microdata from the China Family Panel Studies (2012–2022) at the prefecture-year level, yielding an unbalanced panel of 32,789 household-year observations across 105 prefecture-level cities. Using two-way fixed-effects models with instrumental-variable estimation to address endogeneity, we find that DFI significantly raises household income, a result robust to alternative measures, sample restrictions, and a difference-in-differences design. The effect operates through two channels, improved credit accessibility and greater participation in risky assets, and these gains are not accompanied by higher household leverage or financial fragility. The effects are stronger where local financial and market institutions are more developed, indicating a capability-dependent form of inclusion. By clarifying the causal effect and mechanisms linking DFI to household income, the study offers practical guidance for policies promoting sustainable, broadly shared income growth through digital finance.