This article analyzes the influential factors of income gap between urban and rural inhabitants during 1985—1994, 1995—2003 and 2004—2011 based on panel data of 29 provinces and municipalities of China from 1985 to 2011, the results show that although there is a significantly positive correlation between urban and rural inhabitants income gap and financial expenditure as well as financial development, however, during 2004—2011, financial expenditure and financial development are obviously negatively related to urban and rural inhabitants income gap, furthermore, the role of financial expenditure is bigger on narrowing urban and rural inhabitants income gap and its effect is more significant, that the industrial structure optimization during 1985—2011 is conducive to shrinking urban and rural inhabitants income gap, industrial structure upgrading, economic growth, opening to outside, inflation and urbanization are all obviously positively related to urban and rural inhabitants income gap, however, during 2004—2011, only urbanization coefficient is significantly positive. Thus, in recent years, China’s active financial policy has obviously positive effect on narrowing urban and rural inhabitants income gap. China should use more financial resources to develop agriculture and countryside, guide financial resources to flow to “Three Agricultures”, and accelerate industrial structure adjustment in order to further shrink urban and rural inhabitants income gap.