IMF Working Papers

Digital Financial Inclusion and Income Inequality in China

By Yan Shen, Fei Han, Yanlong Li

April 4, 2025

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Format: Chicago

Yan Shen, Fei Han, and Yanlong Li. "Digital Financial Inclusion and Income Inequality in China", IMF Working Papers 2025, 071 (2025), accessed May 20, 2025, https://doi.org/10.5089/9798229004749.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper uses both macro and household-level data to examine the relationship between digital financial inclusion, measured by the Peking University digital financial inclusion index, and income inequality in China. We find that a higher level of digital financial inclusion is associated with significantly lower income inequality within provinces, including through having larger positive effects on lower-income households’ incomes from salaries and public and private transfers. However, we do not find a significant impact of digital financial inclusion on income inequality across provinces, as households in the relatively more developed southern region benefitted more from digital financial inclusion than those in the northern region. We also find that digital financial inclusion has larger effects on the incomes of rural, female-headed, and less educated households, which have likely contributed to the narrowing of the overall income inequality, but a smaller effect on the income of elderly households—pointing to the “digital divide” problem among the elderly in China.

Subject: Financial inclusion, Financial markets, Financial sector development, Income, Income distribution, Income inequality, National accounts

Keywords: Digital financial inclusion, Financial inclusion, Financial sector development, Global, Household income, IMF working paper 25/71, Income, Income distribution, Income inequality, Macro effect, Micro mechanism, Transfer income, Wage income

Publication Details

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