Narrow The Income Gap Between The Optimal Policy Choice

The economy of China is experiencing an accelerative period of economic structure upgrading and transformation of mode of growth after a sustained and rapid development of economy since the adoption of the reform and opening-up policy. Reducing the widening income gap between the rich and the poor is one of the main challenges for the government strategy of transformation of mode of growth. This article discusses the optimal government policy for bridging the gap between the rich and the poor at the present stage.The article comes to the conclusion that the intersected structure of town and country contributes the most part of income disparity and the elimination of the defect in economic, social and administrative institution plays the role of the most serious obstacle in the solution of income disparity, with an intensive study of literature on the emergence, evolution and solution of income disparity in our country.In order to reveal the optimal policy, we set a perfect market model without government as benchmark model to study the role of the market and the government in bridging the income gap. The influence of institution defect on income gap and possible policy has been studied by adding the intersected structure of town and country and status discrimination to the benchmark model.Our research shows that the government plays an irreplaceable role in narrowing the income gap. In a perfect market, the optimal policy for narrowing the income gap of government may be found as creating job, providing public education and social security, imposing and sharing legacy duty in the whole society.To overcome our institution defect including the intersected structure of town and country and status discrimination, we need a government reform. The reform can be realized by reducing direct control and intervention on economic operation, strengthening the legal and property right system, exploiting the market force and maintaining the upward possibility for the whole society, especially the bottom class of the society. To eliminate the institutional defect, we must put the social evolution on the basis of clearly-established ownership system, which is a long-time and gradual progress.