How Public Health Expenditure Affects Urban-Rural Income Inequality

To further narrow the gap between urban and rural areas, especially the income gap between urban and rural residents is a hot topic in recent years. Since opening-door policy carried out, China’s economy has made remarkable achievements, but the urban-rural income gap become bigger and bigger. The income gap not only hinders the sustainable development of economy, equity and efficiency, but also affects the stability and harmony of society. Therefore, studying and solving urban-rural income gap, making the rural residents share the results of the reform is very important. The existing literature has studied quite a lot of urban-rural income gap, and the factors are colorful, this paper also attempts to analyze the causes of urban-rural income gap to provide a new perspective. Therefore, from the perspective of public health expenditure, this article theoretically and empirically analyses mechanism and mathematical relations that how public health expenditure affects urban-rural income gap, for the development of policies to narrow the income gap between urban and rural areas to provide a new theoretical perspective.Firstly, the article combed the 1 from three sides: reasons of urban-rural income gap, health human capital and economic growth, public expenditure and the urban-rural income gap. Which make contribute to the follow-up and analysis, also provide theoretical and technical support.Secondly, the article clarifies the relevant basic theory, the mechanism of how public health expenditure impacts urban-rural income gap, and uses Lucas endogenous growth model to infer the theoretical model of this paper.Thirdly, based on theoretical analysis and comparison of selected indicators, the article establishes a static panel data model(base model) and dynamic panel data model. In the extended Lucas endogenous growth model, the article uses fixed effects(FE), generalized moments estimated difference(DIF-GMM) and the generalized system of moment estimation(SYS-GMM) method for regression analysis model, and the corresponding robust tests.The empirical results show that: China’s long-standing urban bias of public health expenditure has led to urban-rural unbalanced accumulation of health human capital, which may lead to urban-rural income gap. In an extensional Lucas endogenous growth model, this paper using static panel and dynamic panel model analyzes the relationship of public health expenditure, health human capital and urban-rural income gap, empirical results show that: firstly, public health expenditure significantly leads to the expansion of urban-rural income gap on the national level, because the government health expenditures urban bias exists. Secondly, we find that the bias of western region is stronger than the east, so compared with the eastern region, the public health expenditure of western region has a stronger effect on the gap. In addition, the effect of NCMS on narrowing the urban-rural income gap is not significant.Finally, based on the empirical results, from the perspective of public health expenditure, this article gives some advices to narrow the urban-rural income Inequality: First, the government should increase spending on health in rural areas, especially in the western rural areas, gradually to narrow the urban-rural health gap between the level of human capital, and thus narrow the urban-rural income gap. Second, we must further increase budgets of public health expenditure in the same time of increasing the proportion of the rural areas in public health expenditures. Third, we should enhance the level of per capita funding NCMS, accelerate the pace of improvement NCMS.