Social Sciences in China (Chinese Edition)

No.6, 2014

Measuring the Effect of the Chinese Tax System on Income Distribution

(Abstract)

Yue Ximing, Zhang Bin and Xu Jing

Measuring the effect of the tax system on income distribution is of great importance for improving China’s income distribution. According to the traditional method of analyzing tax incidence, we use national representative household survey data and flow of funds tables to calculate the total tax burden per family and observe its relationship with income levels. The result shows that China’s tax system as a whole is regressive. To some extent, progressive taxes such as personal income tax weaken the regressive effect of indirect taxes. However, due to their small scale, they do not completely offset the regressive nature of the latter. The relationship between the effective rate of tax and income differs significantly between urban and rural areas, with the regressive nature of the taxation system more apparent in rural areas.