On a Market Approach for Correcting Unequal Income Distribution

In this article, the relationship of efficiency and equity is discussed. It's important to make clear of the concept of income. Primary distribution is that of the income from production factors. Disparity of income distribution is therefore caused in the primary distribution. Redistribution aims to correct and reduce the disparity due to the primary distribution. It is argued that efficiency is a concept of production process and equity is regarding distribution, rather than an alternative choice. From this point of view, production process must be efficient and distribution be equitable. In market economy, the distribution of national wealth may compose of three parts: property, personal income caused by property rights, and redistribution made by government in using fiscal policies. Experience of advance countries tells that if there is no equity in the starting point of property distribution, effect of redistribution is very limited. Efficiency and equity are not contradictory, but mutually functional. The government must not only reduce and limit inequity in primary distribution and redistribution, more importantly, must let market mechanism play its role, make fair transaction regulations and laws, reduce revenue disparity in origin, make the society more efficient and more equitable.