This paper investigates the impact of digital inclusive financial development on local government expenditure incentives at the income level. It does so by constructing a multi-level government Dynamic Stochastic General Equilibrium (DSGE) model that incorporates the financial sector. By employing empirical methods that involve uncertainty shocks and counterfactual simulations, the research yields several key findings. Firstly, the development of digital inclusive finance contributes to breaking down the urban-rural dual financial structure, thus facilitating balanced economic development within regions. Secondly, it reduces the proportion of financially excluded areas, accelerates fiscal decentralization, leading to an increase in local government fiscal revenue, and, consequently, an expansion of local fiscal expenditures. Thirdly, at a certain stage of digital inclusive finance development, it tends to crowd out residents' investment and consumption. Therefore, the decentralization of fiscal power and the expansion of local government expenditure at this stage may paradoxically inhibit regional economic growth. The study's conclusions validate the significant impact of digital inclusive finance on local government incentives at the income level.
Copyright: © 2024 Chen et al. This is an open access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.