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Article Title : Analysis of the Influence of Factor Price Distortion based on the Elasticity of Factor Substitution on the Income Distribution Gap in China
Author(s) : Xinyi Song
Corresponding Author : Xinyi Song
Keywords : Factor Price Distortion; Income Distribution Gap; Elasticity of Substitution.

By using mathematical model, this paper finds that the relative factor price distortion acts on income distribution gap through two channels. One is by changing the relative intensity between elements, the other is through preferential technology innovation. What’s more, the effects of two channels are associated with essential factor elasticity of substitution. It can be concluded that under the condition of neutral technical progress, the income distribution gap is affected by relative factor price distortion and factor substitution elasticity. The effect of factor substitution elasticity is related to a certain constant size, while the impact of relative factor price distortion depends on the direction of relative distortion. In the case of biased technology, the effect of relative factor price distortion on income gap is determined by the direction of distortion and elasticity. This paper provides an effective basis for policy making and reminds policy makers of narrowing the income distribution gap. It is necessary to improve the factor price distortion and increase the elasticity of factors substitution, otherwise it may be counterproductive.