Based on the analysis methods of non-parametric Malmquist index and spatial econometrics as well as the panel data of provinces in 2007-2010, this paper estimates the efficiency of fiscal expenditure from local governments in china in terms of reducing the income gap between urban and rural residents for the first time and evaluates the spatial correlation and heterogeneity of this efficiency. The results have shown that the fiscal expenditure of most provinces has low efficiency in reducing the income gap between urban and rural residents, and the expenditure efficiency of local governments is not relevant to their levels of economic development. Besides, the efficiency on reducing the urban-rural income gap between different regions of China has a tendency of convergence. But this is mainly reflected inside the regional economic belt. There is significant difference between the efficiency of each economic belt. The central region has the highest efficiency in a rising trend, the western region has the lowest efficiency in a downward trend, while the eastern region is relatively stable.