Impact of income inequality and fiscal decentralization on public health: Evidence from China

Abstract

In this study, the interrelationship between income inequality, fiscal decentralization, and public health is investigated within a comprehensive research framework for the first time. Using the panel data of 23 Chinese provinces for a period between 2002 and 2012, a carefully designed simultaneous equation model is used to control for potential endogeneity. The estimation results indicate that higher income inequality has a significant negative impact on public health performance. Interestingly, fiscal decentralization has negative direct and indirect effects on public health. Therefore, the empirical results suggest that China’s provincial governments, which have gained significant fiscal power through increased fiscal decentralization, should take the problem of income inequality more seriously, because fiscal decentralization and income equality may both have the potential to benefit public health.