| Abstract | In the process of economic transformation in China, the high urban-rural income ratio makes great challenge to policy. Based on the 1995-2010 provincial panel data, the article analyzes the social expenditure role on urban-rural income ratio in our specific financial mechanism. The main results are: First, the social expenditure has significant lagged effect on narrowing urban-rural income ratio. Second, the decline in the local financial autonomy caused by the reform of the tax system reduces the efficiency of the expenditure and deteriorates the urban-rural income ratio. Third, the increase of transfer, in particular the increase of corresponding transfer payment guarantees that the public resource can be used for social expenditure, used for farmers. This contributes to narrowing the gap between urban income and rural income. Finally, the economic development plays an obvious negative role on urban-rural income ratio. Kuznets curve exists in our country. The urban-rural income ratio will be larger with the economic development. The estimation results are robust even using different measurement methods, recognition technology. |