Rising income inequality challenges economic and social stability in developing countries. For China, the fastest-growing global digital economy, it could be an effective tool to promote inclusive development, narrowing urban-rural income disparity. It investigates the role of digital financial inclusion (DFI) in narrowing the urban-rural income gap. The study uses panel data from 52 counties in Zhejiang Province, China, from 2014 to 2020. The results show that the development of DFI significantly reduces rural-urban and rural income inequality. The development of DFI helps optimize industrial structure and upgrade the internal structure of agriculture, facilitating income growth for people in rural areas. Such effects are greater in poorer counties. Our findings provide insights into why rapid DFI and the narrowing of the rural-urban income disparity exist in China. Moreover, our results provide clear policy implications on how to reduce the disparity. The most compelling suggestion is that promoting the optimization of industrial structure through DFI is crucial for narrowing the urban-rural income gap.
