Analysis Of The Factors Affecting Income Gap In China

Since the reform and opening up, the debate on the priority to efficiency or to fairness have never reached a final conclusion in China, while efficiency and fairness have always seem to conflict. However, the countries and regions in East Asia where a miracle happened in 1960s to 1980s succeeded in achieving rapid economic growth and income equality.Inspired by the East Asian miracle, this article summarized common factors which may affect the disparity of income distribution on the basis of the study of the rapid economic growth and income equality. Secondly, study these common factors both theoretically and empirically by way of literature review. Finally, propose several hypotheses about the disparity of income distribution.In the empirical test part, this article selects eleven factors which indicate GDP, dependence on foreign trade, industrial structure and difference, Urban-rural gap, degree of finance, fiscal revenue and education from 1978 to2009. Specifically, using principal component analysis, we select three main factors from those eleven indicators. Secondly, we put these three main factors and Gini Coeffcient together to establish a VAR model with four endogenous variables, to find long-term trend among them via cointegration test, to find short-term pulse by analyzing established VECM, to draws some illuminating conclusions finally.The empirical results imply that both marketing factor and governing factor are factors leading the disparity of income distribution in the long run while only governing factor is the main factor in it in the short run, also, we can find many other ways to narrow the gap between income distribution form marketing factor and governing factor.