Abstract In recent years, people pay more and more attention to inequality. This paper studies the causal relationship between economic development, market system and income inequality using data from 50 countries in 2004-2015. The empirical results of the SEM model show that the increase of economic development helps to reduce income inequality and the impact of this mechanism is achieved by improving the market-oriented system. The robustness of the conclusion is improved by using the Corruption Perceptions Index as an alternative variable. The expanded analysis of the subsample regression shows that the increase of economic development has more significant effect on the improvement of market system in the indigenous capitalist countries. The market system construction has more significant effect on reducing income inequality in the non-OECD countries with low marketization. Therefore, this paper argues that to achieve the goal of reducing inequality, it is a must to accelerate the market-oriented reform while maintaining steady economic growth.
2019, Vol. 36 
