Abstract: Under the socialist market economy system, the livelihood-related fiscal expenditure plays an important role in narrowing the income gap of the residents and promoting social equity by its incentive and security effect, thus further promotes the realization of the goal of common prosperity. Based on the panel data of 90 cities in China from 2011 to 2020, this paper makes an empirical analysis of the impacts of the two major livelihood-related fiscal expenditures, education and social security employment, on the income gap between urban and rural residents. The findings show that the marginal effect of fiscal expenditures on education and social security employment on the income gap between urban and rural residents is significantly negative, indicating that these two types of expenditures have played a significant role in narrowing the income gap between urban and rural residents. Further research has found out that the above marginal effects have a significant single threshold effect, with a threshold value of 56.010%. When the level of urbanization exceeds 56.010%, the impact of the two types of fiscal expenditures on narrowing the income gap between urban and rural residents will be significantly weakened. It can be seen that relying solely on fiscal expenditure policies cannot sustainably and effectively narrow the urban-rural income gap and achieve common prosperity. We should work together in the two aspects: the market-oriented reform and the improvement of fiscal expenditure structure. Therefore, it is recommended to strengthen market-oriented reforms, gradually eliminate liquidity barriers between urban and rural areas, and promote the construction of a unified national market. While maintaining the steady expansion of fiscal expenditure in areas with lower levels of urbanization, we should adjust the fiscal expenditure structure in areas with higher levels of urbanization, further improve the fiscal transfer payment system, enhance the equalization level of local basic public services, and put into effect of the basic guarantee role of finance for people’s livelihood.

Key words: common prosperity, livelihood-related fiscal expenditure, urban-rural income gap, fiscal expenditure on education, fiscal expenditure on social security