Inefficient land allocation between rural and urban areas persists in China under rigid land-use regulations and sustained rural outmigration. In 2008, the central government authorized Chongqing, a municipality with provincial-level authority, to pilot Dipiao, the Land Coupon Program (LCP), a market-based mechanism allowing rural construction quotas to be traded for urban expansion, with the stated goals of advancing urban–rural integration and raising rural household incomes. We examine whether the LCP narrowed the urban–rural income gap. Exploiting staggered county-level adoption across 37 counties between 2009 and 2017, we apply heterogeneity-robust difference-in-differences estimators, complemented by provincial-level synthetic control analysis. The LCP lowered Chongqing’s urban–rural income ratio by 0.21 (6.0%) on average, with the effect growing monotonically to 0.29 (8.3%) after nine years. Most convergence occurred within counties, driven by rising rural incomes rather than falling urban ones. Participation tracked baseline disadvantage: poorer, more rural, and more unequal counties adopted the LCP earlier and traded more intensively. A multiplier analysis further suggests that land coupon revenues flowing to rural households and collectives amplified local economic impacts, reducing inequality in a progressive and compounding manner. More broadly, our findings show how government-facilitated market mechanisms can promote inclusive growth and reduce spatial inequality in economies where private landholding is constrained, contributing to debates on transferable rights in transitional and developing settings.
