<p>Inclusive urbanization hinges on government’s fiscal strategy and policy orientations. Over the past decade, the Chinese central government has undertaken notable shift in its development goals to achieve inclusive urbanization, from exclusive public service provision to equalization of urban–rural basic public services. This study seeks to examine local government’s fiscal strategy and identify the key drivers propelling inclusive urbanization in China. Based on 285 cities of the period 2007 to 2021, we start with the Data Envelopment Analysis to assess the local government’s fiscal performance for urban inclusiveness. The results reveal the spatiotemporal variations and an overall upward trend in urban inclusiveness, with western cities exhibiting relatively higher performance scores. Further, we employ spatial models and find positive neighboring effects of local governments on promoting urban inclusiveness. The regression results reveal an inverted U-shaped relationship between GDP and urban inclusiveness, while fiscal decentralization and government transfer payments are also found to be strongly associated with inclusiveness. However, the magnitude and direction of these effects vary across regions, likely due to differences in place-based policies and underlying economic structures. These findings underscore the necessity of designing differentiated fiscal policies from higher-level government to local government that account for regional contexts.</p>