Abstract: The point of view that market economy is always accompanied with the expansion of income gap even polarization has a deep social foundation and is widely accepted in China. In practice, however, the economic surplus in the planned economy is concentrated to the state; the plan-makers tend to satisfy themselves. While in the market economy, because there are numerous producers of different types and scales, their competition in each link will lead to a more equal income distribution for the residents than that in the planned economy. The experience data during 1978-2010 indicate that the marketization has significantly narrowed the income gap, when the index of marketization rises by one percent, the Gini coefficient will be reduced by 0.1 percent. Therefore, to further promote the process of marketization is not only an important practical task in the economic restructuring, but also an inevitable requirement of narrowing the residents’ income gap.

Key words: marketization; income distribution; Gini coefficient