The impact of Long-term Care Insurance on household income inequality: Evidence from China

Abstract

The stable performance of the national economy constitutes a vital component in achieving common prosperity. As a crucial element of the social security system, evaluating the actual effectiveness of Long-Term Care Insurance (LTCI) in providing a safety net for families has emerged as a core issue in current policy implementation. This paper explores the impact and mechanisms of LTCI policies on household income inequality, based on three waves of data from the China Health and Retirement Longitudinal Study (CHARLS) in 2013, 2015, 2018, and 2020, along with macro-level data from various provincial-level administrative regions. The study finds that the introduction of the LTCI policy has significantly mitigated the level of household income inequality in pilot areas. This mitigating effect exhibits significant heterogeneity concerning medical payment risk and across urban and rural regions. Furthermore, the findings demonstrate that LTCI contributes positively to reducing household income inequality primarily through two mechanisms: the social job creation effect and the reduction in family caregiving burden. Based on these findings, the research provides valuable insights for bridging income inequality and achieving common prosperity.