| Sumario: | Income inequality has posed a significant societal challenge to achieving sustainable development in China. Exploring the factors influencing income inequality has long been a research hotspot, but less attention has been given to the role of fiscal transparency. Employing China's city-level panel data, this study reveals that fiscal transparency is negatively associated with income inequality in China, which is conducive to realising the goal of 'Promoting Equality by Disclosure'. The association is achieved mainly by changing local governments' behaviours through optimising the fiscal expenditure structure, inhibiting the excessive expansion of local nontax revenue and curbing local official corruption. A heterogeneity test shows that fiscal transparency has stronger negative associations with income inequality for areas with a sound fiscal status and for China's eastern regions. Furthermore, regarding the 'New Budget Law' conducted in 2015 as a natural experiment, we establish a quasi-difference-in-differences (quasi-DID) model and find that the implementation of this law can significantly optimise the income distribution pattern, demonstrating the necessity and effectiveness of legal constraints in fiscal transparency governance.
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