Inclusive Finance, Income Gaps andCommon Prosperity

Yin Zhichao1, Wen Xiaomei2, and Li Chuanzheng*3

1, 3 School of Finance, Capital University of Economics and Business, Beijing, China

2 China Rongtong Culture and Education Group Co., Ltd.

Abstract: According to the Report to the 20th CPC National Congress, delivering commonprosperity for all the people is an intrinsic requirement of Chinese modernization. Basedon China Household Finance Survey (CHFS) data from 2015 to 2019, this study examinesthe effects of inclusive finance on China’s household income disparities and demonstrateshow inclusive finance contributes to shared prosperity. Our empirical research revealsthat inclusive finance has significantly decreased the income disparities between Chinesehouseholds. Inclusive finance has significantly increased the income levels of householdsbelow the 40th percentile, making it more likely for them to move above the 40th percentileof incomes, which is conducive to delivering common prosperity. Our analysis indicatesthat inclusive finance will reduce income disparities by assisting low-income householdsin starting a business and by promoting rural household employment. Reflecting itsinclusive nature, further investigation reveals that inclusive finance has a greater positiveimpact on the income level of vulnerable households. Our research offers new evidence forcomprehending the role of inclusive finance and a new interpretation of income disparities,with policy implications for accelerating Chinese modernization.

Keywords: Inclusive finance, common prosperity, income disparity, entrepreneurship,

JEL Classification Code: D14, D63

DOI: 10.19602/j.chinaeconomist.2023.09.03