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Income Distribution and Economic Growth: Theoretical Relations and Empirical Analysis(Special Issue, No.39, 2016)


By Zhang Laiming & Li Jianwei, Research Team on “Reform of China’s Income Distribution System”, Research Department of Social Development, DRC

Research Report, Special Issue, No.39, 2016 (Total 1514)2016-08-22

Abstract: The theories on relations between income distribution and economic growth by Western economic schools bear strong features and limitations of the times with self-contradictory conclusions based on empirical analysis. From the perspective of recycling development, the income distribution pattern is both the result of growth and a key factor to decide future growth. Determined by the innate requirements of economic development rules, the proportion of labor income generally shows a trend from decline to rise whereas capital factor reveals an opposite performance, with people’s income gap presenting an “inverted-U” shape. The microeconomic foundation leads to the change between supply and demand in the productive factor market, but increased proportion of people’s income does not necessarily cause narrowed income gap. The income gap provides support, through the change of consumption demand, to the rise of emerging industries in the early-to-middle period of industrialization and to the transformation and upgrading of industrial mix in the middle-to-later period of industrialization. China’s economy is experiencing the later period of industrialization, which makes narrowing income gap and enlarging the mid-income group a necessary option for steady economic growth in the future.

Key words: income distribution, the mid-income group, economic growth