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The Impact of Taxes and Transfers on Income Inequality, Poverty, and the Urban-Rural And Regional Income Gaps in China

Author

Listed:
  • Nora Lustig

    (Stone Center for Latin American Studies, Department of Economics, Tulane University, Commitment to Equity Institute (CEQ).)

  • Yang Wang

    (Institute of Economics and Finance, Nanjing Audit University, China)

Abstract

China is characterized by high prefiscal overall, urban-rural and regional inequality. Applying standard fiscal incidence analysis, we estimate the redistributive effect of taxes and social spending on income distribution and poverty. In particular, we estimate the effect of direct and indirect taxes, direct cash transfers, contributory pensions, indirect subsidies, and in-kind transfers (education and health) on overall inequality and poverty, the urban-rural income gap, and income inequality between regions. The results show that the fiscal system is inequality- reducing overall and between regions. However, the urban-rural gap rises and the postfiscal headcount ratio is higher than prefiscal poverty in rural areas. Both are undesirable outcomes given that rural residents are poorer. They are largely explained by the considerably lower contributory pensions received by rural residents.

Suggested Citation

  • Nora Lustig & Yang Wang, 2020. "The Impact of Taxes and Transfers on Income Inequality, Poverty, and the Urban-Rural And Regional Income Gaps in China," Commitment to Equity (CEQ) Working Paper Series 93, Tulane University, Department of Economics.
  • Handle: RePEc:tul:ceqwps:93
    as

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    File URL: http://repec.tulane.edu/RePEc/ceq/ceq93.pdf
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    References listed on IDEAS

    as
    1. Dennis Tao Yang, 1999. "Urban-Biased Policies and Rising Income Inequality in China," American Economic Review, American Economic Association, vol. 89(2), pages 306-310, May.
    2. Marisa Bucheli & Nora Lustig & Máximo Rossi & Florencia Amábile, 2012. "Social Spending, Taxes and Income Redistribution in Uruguay," Documentos de Trabajo (working papers) 1212, Department of Economics - dECON.
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    4. Shi Li & Chuliang Luo & Terry Sicular, 2011. "Overview: Income Inequality and Poverty in China, 2002-2007," University of Western Ontario, Centre for Human Capital and Productivity (CHCP) Working Papers 201110, University of Western Ontario, Centre for Human Capital and Productivity (CHCP).
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    More about this item

    Keywords

    Poverty and Inequality in China; Urban-Rural Gap; Regional Disparity; Taxes; Transfers; Incidence Analysis; Test;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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