**Second, the progressivity of the fiscal system is driven for the most part by publicly provided education and health services** . The light and dark green bars in Figures 4 and 5 represent net in-kind education and health benefits, respectively. Net in-kind benefits are computed as the difference between the in-kind benefit received (valued at the average cost of provision for those attending public schools or using health facilities) and user fees paid by households. In kind benefits are significantly higher than user fees (Figure 6), so the net effect is large. These benefits are largely progressive in relative terms, with poorer households receiving more than richer ones relative to their own income.

**If one leaves out in-kind benefits and focuses purely on the cash-elements, the net fiscal position would be positive only for poorest two deciles suggesting that most Chinese households would be net-payers into the system if these in-kind benefits were not accounted for.** The shape of the net benefit chart across the deciles is still downward sloping suggesting that the relatively richer households contribute more into the system as a share of their final incomes, so there is some element of progressivity built in.

Three important additional remarks may be highlighted. First, while the average amount of net benefits is similar across the distribution, the composition differs: net education benefits are larger in absolute amount for lower income households, while net health benefits are, on average, larger among richer households (Figure 6). Second, the fact that households across income deciles pay on average similar RMB amounts of user fees (around RMB 1,500 in health, 400 RMB in education) means that the burden of these fees is very regressive and lands heavier on the poorer segments of the population, relatively to their total income. For households in the first decile, user fees for health care represent more than 20 percent of their final income. Indeed, despite the large increases in the health expenditure financed by the general government (doubling between 2000 and 2020), the share paid by households out of pocket stands at 35 percent, representing an order of magnitude higher than those observed in most rich countries (WDI 2024). Third, the existence of differences in quality of services provided and in population needs across the distribution can imply that even when the benefit levels received are the same for everyone, the system is not reducing inequality more broadly understood. Indeed, it is likely that public schools in better off parts of the country are able to deliver higher quality education, and that poorer households are in greater need of health services as poor health status is typically negatively correlated with income. Yet, in absolute terms, the poorest households receive higher health net transfers than households in the middle of the distribution but lower than households in the top of the distribution (deciles 9-10). Furthermore, households in the lowest decile spend more in private education than all other deciles except the top two deciles (Figure 6.C).

**Figure 6. Average Per Capita Amounts of Health and Education Fiscal Interventions, by Decile**

A. Health Fiscal Interventions B. Education Fiscal Interventions 16