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Does taxation have real effects on agricultural output? Theory and empirical evidence from China

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  • Chunping Zhong
  • Calum Turvey
  • Juan Zhang
  • Changsheng Xu

Abstract

China has a long history of taxing agriculture, with special levies on output. Whether farm households are taxed on a lump-sum basis or as a proportion of output is an important issue. This paper develops a theoretical model to understand better the effects of the lump-sum and proportional taxation on agricultural output. It then empirically investigates the predictions using tax and output data on Chinese agriculture. The theoretical model predicts that lump-sum taxation affects only consumption, while proportional taxation simultaneously affects consumption, capital inputs and final output. Although the main tax policy targeted output, our results suggest that taxation had only a modest impact on output since it was effectively applied as lump sum taxation brought about by localized levies and taxes.

Suggested Citation

  • Chunping Zhong & Calum Turvey & Juan Zhang & Changsheng Xu, 2011. "Does taxation have real effects on agricultural output? Theory and empirical evidence from China," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 14(3), pages 227-242, September.
  • Handle: RePEc:taf:jpolrf:v:14:y:2011:i:3:p:227-242
    DOI: 10.1080/17487870.2011.575105
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