China, as the world's largest developing country and carbon emitter, faces numerous challenges in achieving the "dual carbon" goals, and the environmental governance process will inevitably have systemic impacts on the economy and society. This paper treats the carbon trading pilot as a quasi-natural experiment, based on panel data from 172 prefecture-level cities across the country from 2010 to 2022, and uses a progressive difference-in-differences model to examine the impact and mechanism of the carbon trading pilot policy on the urban-rural income gap. The study shows that the carbon trading policy can narrow the urban-rural income gap by increasing the level of non-agricultural employment among rural residents. This conclusion remains valid after a series of placebo tests and robustness checks, and the policy's effect is more pronounced in the eastern regions and areas with a high degree of marketization. In light of this, this paper proposes three policy implications: strengthen the coordinated governance of carbon emissions and urban-rural income gaps, accelerate the construction of a unified national carbon market; formulate policy measures according to local conditions based on different regional endowment characteristics; and the government should improve non-agricultural employment through multiple channels to help narrow the urban-rural income gap. JEL classification numbers: Q58, D31, O18, H23. Keywords: Carbon trading pilot, Urban-rural income gap, Non-agricultural employment, Generalized difference-in-differences.
Ai et al. (2025) studied this question.