Local Governments’ Behavior And Income Inequality

China’s local governments play an important role in the China economic development. The existing theoretical research on China’s local government focuses on in the context of decentralization, the incentive mechanism, related behavior and the impact of the behavior. But the research on the relationship between local government behavior and the income distribution focuses on local government regulation in the two distribution. Analysis of the mechanism of local government behavior itself influence the initial distribution of the local government is also focused on capital preferential policies lead to a rise in capital gains.This paper analyzes three incentive, financial income, political promotion and official personal benefits, strengthen local government economic development intention. Developing capital intensive industries which needs large-scale investment becomes a rational choice of the local governments. And this behavior will exacerbate income inequality. Lin(2013) discussed the local governments’behavior of developing the capital intensive industry will lead to a lower relative equilibrium wages through affecting relative labor demand. Labor income decline, While the income of entrepreneurs rise because of government subsidies, and government official’s income also rise because they can benefit from the process of investment, thus exacerbating income inequality. This study extends the research on the relationship between local government behavior and income distribution. Based on Lin’s research, the paper analysis the influence of developing capital intensive industries on income distribution under different human capital stock in different area, which can provide useful suggestions for reducing the impact of the local government behavior on income inequality.This paper chooses Technology Choice Index (TCI) to measure the behavior of local government and calculated TCI and Gene coefficient. Using provincial panel data on the year between 1998 to 2012, carried on the regression of the hybrid OLS and fixed effect model, to verify the theoretical results. Empirical results show that the local government’s behavior has positive effect to the income distribution, and this effect is different when there is regional difference in human capital. The high human capital in eastern part would offset part the impact of the local government giving priority to the development of capital intensive industry on income distribution.After theoretical and empirical analysis, this paper puts forward the following policy suggestions on narrowing the gap of income distribution:(1) adjust the performance evaluation mechanism based on GDP to government appraisal system based on stable economic and giving consideration to public opinion; (2) the government should standardize the process of local officials using public power, in order to curb the way officials use power to seek direct economic benefits; (3) improve the regional human capital level can decreases the influence of local governments giving priority to the development of capital intensive industries on income distribution.