This paper measures the Chinese regional income distribution gap based on the Theil index with data of 31 provinces in China from 1998 to 2011. The results showed that overall the income gap between China's rural areas was on the rise from 1998 to 2006, and the income gap was mainly caused by the gap between the East China, Central China and West China. After 2006, it showed a slow decline. The dynamic panel data model established for consumer demand, spending habits, income, regional income disparities showed that income and regional income disparities significantly influence consumer demand of rural residents. Before 2006 regional income gap inhibited the consumption of rural residents, but it promoted consumption after 2006.