Abstract: Taking the economic background of different regions as the premise to study the impact of financial development on the urban-rural income gap, based on the provincial panel data, this essay uses the Panel Smooth Transition Regression Model to test and analyze the threshold effect, poverty reduction effect and regional heterogeneity effect of financial development to urban-rural income gap. The empirical results show that: The mechanism of the impact of financial development on urban-rural income gap shows a significant heterogeneity in different provinces; Nationwide, the threshold effect of financial development on urban-rural income gap is weak; In the areas with a lower level of per capita income, the threshold effect of financial development is relatively obvious, in the areas with a lower level of financial development, the poverty reduction effect of financial development is more significant. Thereby, this paper holds that the financial policy to narrow the urban-rural income gap should be different according to different conditions, especially for the regions, of which the development of the economy and finance is relatively slow, that develop inclusive finance and reduce rural residents financial exclusion degree is the key to reduce the urban-rural income gap.

Keywords: Financial Development; Urban-rural Income Gap; Threshold Effect; Poverty Reduction Effect; Panel Smooth Transition Regression Model