Targeted poverty alleviation and within-village income inequality in rural China

China’s Targeted Poverty Alleviation (TPA) campaign was a central pillar of China’s rural poverty-reduction strategy in the late 2010s, yet its implications for within-village inequality remain less well understood. Understanding within-village distributional effects matters because gains in average income need not translate into broadly shared welfare improvements. We hypothesize that TPA compresses the village income distribution by disproportionately raising poor households’ incomes relative to non-poor households. Using four waves of the China Family Panel Studies (2010, 2012, 2014, and 2018), we implement a continuous difference-in-differences design that exploits cross-village variation in baseline poverty intensity. We find that higher TPA exposure significantly reduces within-village income inequality across multiple inequality measures. Mechanism evidence is consistent with larger income gains among poor households, particularly through industrial support, employment promotion, and government transfers. Overall, the results suggest that targeted anti-poverty interventions can reduce local inequality alongside raising incomes, highlighting the value of maintaining well-calibrated, pro-poor targeting after the elimination of absolute rural poverty.