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The Income Redistribution Effect Of China'S Personal Income Tax: What The Micro-Data Say

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  • Guangrong Ma
  • Jianwei Xu
  • Shi Li

Abstract

type="main" xml:id="coep12082-abs-0001"> This article uses continuous micro-level data to investigate the income redistribution effect of the personal income tax (PIT) in China beginning in 1997. We find that the average tax rate plays a larger role in determining the income redistribution effect of PIT than tax progressivity does. Although tax progressivity decreased as a result of rising personal incomes and a constant PIT policy prior to 2005, the income redistribution effect of the PIT improved as a result of the higher average tax rate. The tax reform beginning in 2006 increased tax progressivity while decreasing the average tax rate, thereby weakening the income redistribution effect of the PIT. Further analysis indicates that the middle-income group was the only net loser before 2005, but it benefited from the PIT policy reform. A cross-country comparison shows that China has a lower PIT burden and higher progressivity than developed countries; in fact, China's levels of progressivity and tax burden are similar to those of Latin American countries. ( JEL H24, D31, H31)

Suggested Citation

  • Guangrong Ma & Jianwei Xu & Shi Li, 2015. "The Income Redistribution Effect Of China'S Personal Income Tax: What The Micro-Data Say," Contemporary Economic Policy, Western Economic Association International, vol. 33(3), pages 488-498, July.
  • Handle: RePEc:bla:coecpo:v:33:y:2015:i:3:p:488-498
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    File URL: http://hdl.handle.net/10.1111/coep.2015.33.issue-3
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    More about this item

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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