Fiscal Policy and Social Equity: The Redistribu‎tive Effects of Government Spending on Inequality

  • Authors

    • Shang Yao School of Economics, Finance and Banking, Universiti Utara Malaysia
    • Abu Sufian Abu Bakar School of Economics, Finance and Banking, Universiti Utara Malaysia
    • Shamzaeffa Samsudin Shamzaeffa Samsudin, Economic and Financial Policy Institute (ECOFI), Universiti Utara Malaysia
    https://doi.org/10.14419/bh7rgd11

    Received date: December 5, 2025

    Accepted date: December 16, 2025

    Published date: January 6, 2026

  • Fiscal Policy; Income Inequality; China; Fiscal Incidence; Benefit Incidence; Pan-El Data; Redistribution; Education Expenditure; Healthcare Expendi-ture; Social Security; Intergovernmental Transfers

  • Abstract

    The paper analyzes the redistributive impact of government expenditures on income inequality in Chinese provinces through a synthesis of fiscal incidence analysis, benefit incidence approaches, and panel econometric analysis. Based on provincial expenditure data for 2019-2021 and household-level inequality indicators, the analysis assesses the impacts of education, healthcare, social security expenditure, and intergovernmental transfers on driving market and post-fiscal income distribution. Findings indicate that the fiscal policy has a strong equalizing role in that the Gini coefficient of 0.467 (market income) is reduced to ‎‎0.414 when direct transfers are added and to 0.384 when in-kind education and ‎health benefits are subsequently added. The results of benefit incidence suggest ‎that education and healthcare expenditure are quite pro-poor, whereas social security-‎ty and welfare are almost neutral based on institutional fragmentation. Fixed-effects regressions establish the strong negative association between education ‎and health spending and inequality, and a weak and not statistically significant ‎association between welfare spending and inequality. Intergovernmental transfers ‎show the significant equalization effect, which displays the significance of central-local fiscal coordination. Taken together, the findings confirm the multi-‎channel ability of the Chinese fiscal system to diminish inequality, but also ‎point to the existence of structural constraints to redistributive possibilities, ‎notably in the welfare sector. Policy proposals aim at reinforcing human capital ‎expenditure, enhancing healthcare equity, reforming disjointed welfare, and allocating transfers to promote social equity‎.

  • References

    1. Bação, P., Duarte, J., & Simões, M. (2024). Social expenditure composition, inequality, and growth in the OECD: Labour market policies are most effective. Journal of Policy Modeling, 46(1), 75–89. https://doi.org/10.1016/j.jpolmod.2024.01.001.
    2. Clements, B., Gupta, S., & Jalles, J. T. (2025). Public Spending and Inclusive Growth in Developing Asia†. Public Finance Review, 53(2), 139–168. https://doi.org/10.1177/10911421241296203.
    3. Danso-Mensah, K., Atta-Ankomah, R., Osei, R. D., & Osei-Akoto, I. (2024). The redistributive and welfare impact of fiscal policies in Ghana: new evidence from CEQ methodology. Cogent Economics and Finance, 12(1). https://doi.org/10.1080/23322039.2024.2398734.
    4. Gut, I. (2024). FISCAL INSTRUMENTS FOR INCLUSIVE DEVELOPMENT IN THE SOCIAL SECURITY SYSTEM. Економіка Розвитку Систем, 6(2), 71–76. https://doi.org/10.32782/2707-8019/2024-2-10.
    5. Isiaka, A., Mihailov, A., & Razzu, G. (2025). Fiscal policy and inequality in middle- and high-income countries: redistributive effects of tax and spending shocks. Macroeconomic Dynamics, 29, e12. https://doi.org/10.1017/S1365100524000142.
    6. Ji, W., Chu, F., & Qin, Y. (2025). Redistributive effects of China’s urban–rural resident basic medical insurance: a theoretical model and empirical analysis. Frontiers in Public Health, 13, 1689510. https://doi.org/10.3389/fpubh.2025.1689510.
    7. Kakwani, N., & Son, H. H. (2025). How should we assess fiscal policies in response to emerging development challenges? China Economic Review, 93, 102477. https://doi.org/10.1016/j.chieco.2025.102477.
    8. Li, M., & Liu, L. (2024). Reforms and Inequality: Examining the Impact of China’s Primary Distribution System Reforms on Wage Inequality (1989–2015). Journal of Contemporary China. https://doi.org/10.1080/10670564.2024.2439402.
    9. Liu, F., & Hu, Y. (2025). Can fiscal transfers achieve both equity and efficiency: Evidence from Chinese counties. International Review of Econom-ics & Finance, 103, 104586. https://doi.org/10.1016/j.iref.2025.104586.
    10. Liu, H., Wang, L., Wang, J., Ming, H., Wu, X., Xu, G., & Zhang, S. (2024). Multidimensional spatial inequality in China and its relationship with economic growth. Humanities and Social Sciences Communications 2024 11:1, 11(1), 1415-. https://doi.org/10.1057/s41599-024-03961-y.
    11. Lugo, M. A., Lustig, N., Montalva Talledo, V. S., Tiwari, S., & Wang, Y. (2024). How Redistributive Is Fiscal Policy in China? New Evidence on the Distributional Impacts of Taxes and Spending. How Redistributive Is Fiscal Policy in China? New Evidence on the Distributional Impacts of Taxes and Spending. https://doi.org/10.1596/1813-9450-10887.
    12. Lugo, M. A., Lustig, N., Sonia, V., Talledo, M., Tiwari, S., & Wang, Y. (2024). How Redistributive Is Fiscal Policy in China? New Evidence on the Distributional Impacts of Taxes and Spending. http://www.worldbank.org/.https://doi.org/10.1596/1813-9450-10887.
    13. Lustig, N., Martinez-Pabon, V., & Pessino, C. (2025). Fiscal policy, income redistribution, and poverty reduction in Latin America. Oxford Open Economics, 4(Supplement_1), i426–i446. https://doi.org/10.1093/ooec/odae034.
    14. Miranda-Lescano, R., Muinelo-Gallo, L., & Roca-Sagalés, O. (2024). Redistributive efficiency of fiscal policy: The role of decentralization and good governance. Regional and Federal Studies, 34(2), 189–216. https://doi.org/10.1080/13597566.2022.2092844.
    15. Morana, G. (2023). Impact of Imaging and Distance Perception in VR Immersive Visual Experience.
    16. Popp, C., & Murphy, D. T. (2022). Creating Audio Object-Focused Acoustic Environments for Room-Scale Virtual Reality. Applied Sciences 2022, Vol. 12, Page 7306, 12(14), 7306. https://doi.org/10.3390/app12147306.
    17. Rani, A., & Kumar, S. (2023). Impact of fiscal policy on interstate economic inequality. ~ 15 ~ International Journal of Financial Management and Economics, 6(2), 15–18. https://doi.org/10.33545/26179210.2023.v6.i2.212.
    18. Raposo, A. N., & Soares, V. N. G. J. (2025). Modular Microservices Architecture for Generative Music Integration in Digital Audio Workstations via VST Plugin. Future Internet, 17(10), 469. https://doi.org/10.3390/fi17100469.
    19. Sulaiman, B. U., Amos Malan, U., & Eliezer, N. (2025). Evaluating the Effectiveness of Fiscal Policy in Reducing Income Inequality: Review. Ldealistic Journal of Advanced Research in Progressive Spectrums (IJARPS) EISSN– 2583-6986, 4(03), 1–6. ‎https://journal.ijarps.org/index.php/IJARPS/article/view/637‎.
    20. Sun, G., & Sun, Y. (2024). Economic and health impacts of China’s comprehensive health care system reform. Journal of Applied Economics, 27(1). https://doi.org/10.1080/15140326.2024.2425257.
    21. Tu, X., Yan, J., & Zheng, J. (2024). Income composition inequality of Chinese residents and fiscal redistribution effect: An empirical analysis on individual income tax and transfer system. PloS One, 19(1). https://doi.org/10.1371/journal.pone.0296129.
    22. Wang, C., & Zhang, M. (2025). Market-oriented reforms and wealth inequality in China. Economic Modelling, 143, 106959. https://doi.org/10.1016/j.econmod.2024.106959.
    23. WID.world. (2024). China’s contemporary paradox: rising inequality, falling support for redistribution - WID - World Inequality Database. https://wid.world/news-article/chinas-contemporary-paradox-rising-inequality-falling-support-for-redistribution/?.
    24. Xiang, X., Li, Y., Liang, N., Wang, B., & Wang, H. (2025). Assessing healthcare payment reforms’ effects on economic inequities and catastrophic expenditures among cancer patients in ethnic minority regions of China. BMC Medicine 2025 23:1, 23(1), 208-. https://doi.org/10.1186/s12916-025-04040-y
    25. Yan, J., Qin, Y., & Gong, X. (2025). The impact of fiscal pressure on education expenditure: Evidence from China. PLOS ONE, 20(6), e0327484. https://doi.org/10.1371/journal.pone.0327484.
    26. Yang, X., Barros, L., Matthews, K., & Meenagh, D. (2024). The dynamics of redistribution, inequality and growth across China’s regions. Journal of Policy Modeling, 46(3), 613–637. https://doi.org/10.1016/j.jpolmod.2024.01.011.
    27. Zhang, Z., & Tang, J. (2025). Does Income Redistribution Reduce Inequality of Opportunities? Evidence from China. Social Sciences 2025, Vol. 14, Page 527, 14(9), 527. https://doi.org/10.3390/socsci14090527.
    28. Zhao, X., Yang, S., Li, S., & Gao, Q. (2025). More urban-rural integrated Chinese social welfare: How do education benefits improve the picture? Journal of Asian Economics, 98, 101940. https://doi.org/10.1016/j.asieco.2025.101940.

  • Downloads

  • How to Cite

    Yao , S. ., Abu Bakar, A. S. ., & Samsudin, S. . (2026). Fiscal Policy and Social Equity: The Redistribu‎tive Effects of Government Spending on Inequality. International Journal of Accounting and Economics Studies, 13(1), 11-23. https://doi.org/10.14419/bh7rgd11