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Asymptotic Marginal Tax Rate of Individual Income Tax in China

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  • Zhenya Liu
  • Wu Yang
  • David Dickinson

Abstract

This paper examines the asymptotic marginal rate of individual income tax which maximizes China’s social welfare through numerical simulation based on the elasticity of China’s labor supply, income distribution and the social objectives of redistribution in accordance with the optimal direct taxation theory. Taking advantage of the optimal direct taxation model with consideration of the income effect, it comes to the conclusion that combined with China’s reality, the asymptotic marginal rate of individual labor income tax in China should be between 35% and 40%.

Suggested Citation

  • Zhenya Liu & Wu Yang & David Dickinson, 2014. "Asymptotic Marginal Tax Rate of Individual Income Tax in China," Economic and Political Studies, Taylor & Francis Journals, vol. 2(2), pages 121-138, July.
    • Handle: RePEc:taf:repsxx:v:2:y:2014:i:2:p:121-138
    DOI: 10.1080/20954816.2014.11673847
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