Has digital finance widened the income gap?

Area of Science:

• Economics
• Digital Finance
• Income Distribution

Background:

• China's digital finance landscape is rapidly evolving.
• Understanding its impact on income inequality is crucial for policy-making.

Purpose of the Study:

• To empirically analyze the linear and nonlinear relationship between digital finance and residents' income in China.
• To investigate the Kuznets effect and threshold characteristics of digital finance on income distribution.
• To explore policy implications for regulating income distribution through digital finance.

Main Methods:

• Utilized statistical data from 280 Chinese prefectural-level cities (2011-2020).
• Employed linear and nonlinear models, including G-J model theory.
• Applied two nonlinear methods and a threshold model to verify effects and characteristics.

Main Results:

• Confirmed a Kuznets effect: digital finance initially widens income gaps in China.
• Most regions are pre-inflection point, indicating continued income disparity growth.
• A threshold effect was found: positive impact on disparity initially rises with economic level, then declines.

Conclusions:

• Digital finance development currently exacerbates income inequality in most of China.
• Policy interventions are needed to mitigate negative distributional effects.
• The relationship is complex, influenced by regional economic development stages.