The effect of basic public service on urban-rural income inequality: a sys-GMM approach

Based on provincial panel data of China ranging from 2004 to 2015, this paper has empirically examined the effect of basic public service on the urban–rural income inequality with a system generalised method of moments (sys-GMM). We arrive at the following conclusions: 1) the improvement of public service provision is conducive to narrowing the urban–rural income gap; 2) compared with the ‘hard’ public services (including infrastructure, environmental protection and cultural facilities), the ‘soft’ public services (including education, medical care and social security) play a more significant role in reducing the disparity; 3) the household registration system impairs the welfare brought by the ‘soft’ public services and exacerbates the passive effect of ‘hard’ public services on the income gap; 4) the interactive impact of household registration regulation and public service provision on the income gap is more significant in developed areas. These findings suggest the government should give priority to the improvement of ‘soft’ public services, reevaluate the way of spending on ‘hard’ public services in rural areas and deepen the household registration system reform.