Digital divide and income inequality: causal evidence from Italian provinces

Abstract The digital economy can function either as a catalyst to stimulate economic growth or else as a driver of socioeconomic inequality when its benefits are unevenly distributed. This study investigates the effect of rural digital connectivity on income inequality in Italy. Utilizing NUTS 3 panel data spanning 2014–2022, we conduct a counterfactual Difference-in-Differences approach with continuous treatment intensity to estimate the impact of introducing rural broadband coverage at speeds of 30 and 100 Mbps on multiple measures of income distribution, including the Gini, Theil, and Atkinson indices. The empirical framework incorporates a comprehensive set of socioeconomic controls, as well as provincial and time fixed effects, to account for unobserved heterogeneity and regional path dependencies. Our findings indicate that broadband expansion is significantly associated with increasing inequality, suggesting that access alone does not guarantee inclusive outcomes, particularly in localities characterized by structural fragility and limited human capital. Additional heterogeneity and spatial analyses demonstrate that these inequality effects are more evident in southern provinces and localities with a higher concentration of inner areas, where the digital divide remains more pronounced. These findings accentuate the dual role of digitalization and highlight the necessity of coordinated policy interventions that combine infrastructure investment with digital skills development, institutional capacity-building, and spatially integrated governance strategies.