Abstract: The report of the 20th National Congress of the Communist Party of China proposed that achieving common prosperity for all is one of the basic goals of Chinese path to modernization, and narrowing the income gap between urban and rural areas is the key means to achieve this goal. Based on the data from 31 provinces in China from 2011 to 2020, this study uses spatial econometric models to explore the role and impact of digital inclusive finance development in narrowing the urban-rural income gap. The results indicate that there is an inverted U-shaped relationship between the development of digital inclusive finance and the urban-rural income gap. In the short term, the development of digital inclusive finance may temporarily exacerbate the urban-rural income gap, but in the long run, its sustained development will help narrow the urban-rural gap. Meanwhile, the development of digital inclusive finance also has spatial spillover effects. Further analysis shows that in the eastern and western regions, with lower industrial structure, lower urbanization level, and lower marketization level, the development of digital inclusive finance plays a greater role in narrowing the urban-rural income gap. At the same time, the role of digitalization level and coverage breadth is also evident. The mechanism analysis reveals that the development of digital inclusive finance can narrow the income gap between urban and rural areas by improving the level of traditional financial development and the human capital of farmers. Therefore, in the process of promoting the development of digital inclusive finance in the future, the government should pay more attention to expanding its application breadth, introducing relevant preferential policies to the central and western regions, and encouraging the developed regions to share infrastructure, so as to more effectively promote the narrowing of the urban-rural income gap and solidly promote the realization of common prosperity for all people.

Key words: urban-rural income gap, digital inclusive finance, spatial econometric model