The effects of social security expenditure on reducing income inequality and rural poverty in China

Social security has, as one of its primary aims, the provision of financial support to those deemed to be poor or facing the threat of poverty. Based on China’s national statistical data covering social insurance, social assistance, and social welfare between the period 1978–2018, this paper evaluates the effect of social security expenditure in reducing income inequality and rural poverty with cointegration analysis. It was found that there is a positive correlation between social security expenditure and the income gap of urban and rural residents in the long run, but the effect is very limited; nearly 99% of the changes of the urban–rural income gap come from its own contributions. Further research also shows that the elasticity of rural poverty incidence to social security expenditure is –0.2255, which indicates social security expenditure helps reduce rural absolute poverty. Based on these findings, the policy implications can be that much social security expenditure and a more equitable social security system should be encouraged. It will become one of the major anti-poverty strategies after 2020 in China when we win the battle against absolute poverty.