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Income Inequality and Progressive Income Taxation in China and India, 1986-2015

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  • Piketty, Thomas
  • Qian, Nancy

Abstract

This paper evaluates the prospects for income tax reform in China during the coming decade (with a comparison to India), and argues that such reforms should rank high on the policy agenda in these two countries. Due to high average income growth and sharply rising top income shares during the 1990s and early 2000s, progressive income taxation is about to raise non-trivial tax revenues in China and India and to become an important political object. According to our projections, the income tax should raise at least 4% of Chinese GDP in 2010 (versus less than 1% in 2000 and 0,1% in 1990), in spite of the 20% nominal rise in the exemption threshold that took effect in 2004. The fact that progressive income taxation is becoming an important policy tool has important consequences for China’s ability to finance social spending and to keep under control the rise in income inequality associated to globalization and growth. Due to faster income growth and to a higher fraction of wage earners in the labor force, the prospects for income tax development look better in China than in India. This potential is however limited by the fact that Chinese top wage-earners are under-taxed relatively to top non-wage income earners.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5703.

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Date of creation: May 2006
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Handle: RePEc:cpr:ceprdp:5703

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Keywords: income distribution; income taxation;

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  1. Thomas Piketty, 2003. "Income Inequality in France, 1901-1998," Journal of Political Economy, University of Chicago Press, vol. 111(5), pages 1004-1042, October.
  2. Thomas Piketty & Emmanuel Saez, 2003. "Income Inequality In The United States, 1913-1998," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 1-39, February.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Inégalités et déséquilibres globaux : reconsidérer de vieilles idées pour traiter de nouveaux problèmes
    by creel in OFCE le blog on 2013-05-27 09:12:25
  2. Inequality and Global Imbalances: reconsidering old ideas to address new problems
    by creel in OFCE le blog on 2013-05-27 09:50:00
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Cited by:
  1. Sabina Alkire and Suman Seth, 2012. "Selecting a Targeting Method to Identify BPL Households in India," OPHI Working Papers ophiwp053, Queen Elizabeth House, University of Oxford.
  2. Atkinson, Anthony B. & Leigh, Andrew, 2010. "The Distribution of Top Incomes in Five Anglo-Saxon Countries over the Twentieth Century," IZA Discussion Papers 4937, Institute for the Study of Labor (IZA).
  3. Julia Cagé & Lucie Gadenne, 2014. "The Fiscal Cost of Trade Liberalization," Working Papers halshs-00705354, HAL.
  4. Julia Cagé & Lucie Gadenne, 2014. "The Fiscal Cost of Trade Liberalization," PSE Working Papers halshs-00705354, HAL.
  5. Thomas Piketty & Emmanuel Saez, 2012. "Optimal Labor Income Taxation," NBER Working Papers 18521, National Bureau of Economic Research, Inc.
  6. Russell Smyth & Xiaolei Qian, 2008. "Knowing One'S Lot In Life Versus Climbing The Social Ladder: The Formation Of Redistributive Preferences In Urban China," Development Research Unit Working Paper Series 05/08, Monash University, Department of Economics.
  7. Rao, Narasimha D., 2013. "Distributional impacts of climate change mitigation in Indian electricity: The influence of governance," Energy Policy, Elsevier, vol. 61(C), pages 1344-1356.
  8. Anthony B. Atkinson & Thomas Piketty & Emmanuel Saez, 2011. "Top Incomes in the Long Run of History," Journal of Economic Literature, American Economic Association, vol. 49(1), pages 3-71, March.
  9. Michał Brzeziński, 2013. "Variance estimation for richness measures," Working Papers 2013-03, Faculty of Economic Sciences, University of Warsaw.
  10. Michał Brzeziński, 2013. "Asymptotic and bootstrap inference for top income shares," Working Papers 2013-01, Faculty of Economic Sciences, University of Warsaw.
  11. Sabina Alkire and Suman Seth, 2012. "Identifying BPL Households: A Comparison of Methods," OPHI Working Papers ophiwp054, Queen Elizabeth House, University of Oxford.

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