The digital economy and urban-rural income inequality in China: the role of new urbanization

Income inequality is a bottleneck constraining China's sustainable development. The development of the digital economy generates new opportunities to narrow this gap and change the urban-rural dichotomy. Using provincial panel data in China from 2011 to 2020, this study examines the effect of digital economic development on urban–rural income inequality and investigates the moderating and threshold roles of new urbanization. High-dimensional fixed-effects estimates indicate that the digital economy significantly reduces urban-rural income inequality. However, both interaction and threshold regressions reveal pronounced stage dependence: as the level of new-type urbanization rises, the marginal inequality-reducing effect of the digital economy weakens, and the convergence effect is stronger in regions with lower urbanization levels. Regional heterogeneity analysis further shows that this gap-narrowing impact is pervasive nationwide but substantially larger in less developed western regions, suggesting a "latecomer advantage" in capturing digital dividends. Mechanism analysis based on income composition indicates that the digital economy promotes convergence primarily by raising rural wage income and improving the transfer-income structure, while its effects on operating and property income display divergent patterns. Overall, the findings highlight the conditional and structural nature of digital dividends and imply that policies should coordinate digital development with new-type urbanization to enhance rural digital infrastructure, digital skills, and equal access to public services.