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Does digital economy strengthen the income distribution effect of fiscal expenditure? Evidence from China

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  • Jie Yan
  • Xunhua Tu
  • Jing Zheng

Abstract

The exponential growth of China’s digital economy has exerted a profound influence on economic advancement and income distribution. To effectively tackle income inequality, it is essential to incorporate the analysis of digital economy development within the framework of fiscal expenditure. This study utilizes a comprehensive panel dataset encompassing 276 cities in China during the period from 2011 to 2020. Employing the fixed-effect model and instrumental variable method, the research investigates the influence of fiscal expenditure on the income gap while investigating the moderating effect of the digital economy. The key findings of the study can be summarized as follows: (1) In general, fiscal expenditure demonstrates a propensity to reduce the income gap. (2) Different categories of fiscal expenditure exhibit distinct effects on the income gap. Social security and employment expenditures do not significantly alleviate the income gap. Conversely, education expenditures and health expenditures tend to exacerbate the income gap. On the other hand, expenditures in agriculture, forestry, and water resources, as well as urban and rural affairs, effectively narrow the income gap. (3) The development of the digital economy enhances the capacity of fiscal expenditure to adjust income distribution, showcasing non-linear effects. From a fiscal expenditure classification perspective, the digital economy primarily enhances the effectiveness of income distribution adjustment for expenditures in sectors such as agriculture, forestry, water resources, and others. Based on these findings, this study proposes a set of future measures aimed at facilitating China’s efforts to reduce the income gap within the framework of the digital economy. These measures encompass expediting the integration of the digital economy with government governance and advocating for the widespread adoption of digital government affairs platforms. By implementing these measures, China can gain valuable insights into effectively addressing income inequality and promoting more equitable economic outcomes within the context of the digital economy.

Suggested Citation

  • Jie Yan & Xunhua Tu & Jing Zheng, 2023. "Does digital economy strengthen the income distribution effect of fiscal expenditure? Evidence from China," PLOS ONE, Public Library of Science, vol. 18(8), pages 1-19, August.
    • Handle: RePEc:plo:pone00:0290041
    DOI: 10.1371/journal.pone.0290041
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    References listed on IDEAS

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    1. Edward Anderson & Maria Ana Jalles D'Orey & Maren Duvendack & Lucio Esposito, 2017. "Does Government Spending Affect Income Inequality? A Meta-Regression Analysis," Journal of Economic Surveys, Wiley Blackwell, vol. 31(4), pages 961-987, September.
    2. Xavier Ramos & Oriol Roca-Sagales, 2008. "Long-Term Effects of Fiscal Policy on the Size and Distribution of the Pie in the UK," Fiscal Studies, Institute for Fiscal Studies, vol. 29(3), pages 387-411, September.
    3. Simone Salotti & Carmine Trecroci, 2018. "Cross-country evidence on the distributional impact of fiscal policy," Applied Economics, Taylor & Francis Journals, vol. 50(51), pages 5521-5542, November.
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    1. Hanjie Wang & Hao Leng & Minglu Yuan, 2025. "From opportunity to inequality: how the rural digital economy shapes intra-rural income distribution," Palgrave Communications, Palgrave Macmillan, vol. 12(1), pages 1-14, December.

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