Narrowing urban-rural income gap in China: The role of Targeted Poverty Alleviation program

Abstract

The Targeted Poverty Alleviation (TPA) program in China is widely regarded for its influence in eliminating extreme poverty of 70 million rural inhabitants. However, little is known about the extent to which the TPA program narrows the income gap between urban and rural households. Therefore, this study estimates the effect of the TPA program on the urban-rural income gap, measured by the Theil index. A difference-in-difference model with fixed-effects is used to estimate the panel dataset of 279 prefecture-level cities during 2010–2020. The findings show that the TPA program significantly reduced the urban-rural income gap. We obtain robust results using urban-rural income ratio as an income gap measure. Heterogeneous analysis reveals that the income gap reduction effects of the TPA program are largest in the underdeveloped western region, and the effect is smaller for households residing in the central and eastern regions. Effective targeting and a focus on capability building, following regional differences make the program a notable example in reducing poverty and inequality consistent with the Sustainable Development Goals.