ABSTRACT
China has witnessed a rising trend of urban-rural income disparity in its economy. In the literature about China’s urban-rural disparity, most studies attribute the problem to either government policies or institutional barriers that have retarded rural development and the income of peasants. This chapter utilizes the provincial 1998 to 2002 data to empirically evaluate the effectiveness of government fiscal support to the agricultural sector on closing the income gap between the urban and rural residents. It aims to check whether market openness has aggravated or ameliorated the urban-rural disparity. To evaluate the effects of fiscal support and market openness on urban-rural disparity, we must first control a major determinant on inequality —that is, the level of development. Given the extra-budgetary nature of the rural fees and levies collected by the local authorities, the efficiency of local governance may play a crucial role in determining the success of the state policy to contain the gap of urban-rural disparity.
