Abstract: The farmers’ income sources can be divided into four categories, including wage income, operating income and transfer income and property income by the national bureau of statistics of China. Base on PVAR model, and using provinces’ panel data of China from 2000 to 2012, this paper analyzes the dynamic relationships between farmer’s income sources and urban-rural income gap. We find that: the influence of the degree and direction of the farmers’ income sources to urban-rural income gap is different, and transfer income constitutes the main factors of urban-rural income gap changes. This shows that the welfare gap of urban residents and rural residents has seriously restricted the increase of farmers’ income. Wage income of farmers proves the most detrimental to narrowing urban-rural income gap. Operating income and property income have played an important role in narrowing the income gap. The expanding of urban-rural income gap is least useful for raising transfer income.