Since the reform and opening up, in order to deal with the imbalance of regional development, the central government has invested a lot of fiscal transfer payments to the western region, aiming to provide abundant financial support for the western region, so as to improve the level of local infrastructure and public services. However, is the local fiscal expenditure caused by central transfer payments evenly distributed to the investment projects such as infrastructure construction and the supply of social public goods such as health care and education? Is there a bias in local fiscal expenditures that attaches importance to capital construction and ignores micro-resident human capital investment? Furthermore, will this fiscal expenditure structure limit the poverty reduction effect of central transfer payments? This paper focuses on the evaluation of the poverty reduction effect of central transfer payments in the western region from the aspects of basic facts, potential mechanisms and promotion paths.

Based on China’s provincial macro data from 1978 to 2017, using the Western Development Natural Experiment to identify the regional and time variability of central transfer payments, this paper uses the DID and DDD methods to evaluate the poverty reduction effect of central transfer payments. The study finds that central transfer payments have a poverty reduction effect on rural residents in the western region. Specifically, central transfer payments can exert a poverty reduction effect by increasing investment in per capita agricultural expenditure, per capita public services and per capita human capital. The measurement decomposition of the poverty reduction effect further shows that, compared with human capital investment in education, the poverty reduction effect of healthy human capital expenditure is better. The return on the income of farmers’ health investment based on rational choices is greater than that of education investment. In addition, the research shows that the excessively biased investment in local fiscal expenditures will crowd out the proportion of expenditures on agriculture, public services, and human capital, thereby limiting the overall poverty reduction effect of central transfer payments. This paper believes that through measures such as optimizing the structure of local fiscal expenditures and targeted special transfer payments, fiscal funds can be tilted toward farmers’ human capital, basic public services, employment security, and agricultural production, so as to release the poverty reduction effect of central transfer payments.

The contribution of this paper is mainly reflected in two aspects: First, at the level of empirical research, this paper has discovered the empirical evidence and influence mechanism of the poverty reduction effect of central transfer payments. It not only deepens the research on central transfer payments, but also enriches and expands the research results in the fields of government expenditure structure and poverty governance. Second, at the policy level, based on research findings, this paper provides an optimized path to further release the poverty reduction potential of central transfer payments. It has important practical significance for poverty management in underdeveloped areas, improving the efficiency of fiscal fund utilization and the effect of poverty alleviation.