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Optimal Income Tax for C hina
Author(s) -
Li Chengjian,
Li Jinlu,
Lin Shuanglin
Publication year - 2015
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/1468-0106.12105
Subject(s) - economics , tax rate , subsidy , tax deduction , income tax , distribution (mathematics) , adjusted gross income , labour economics , monetary economics , econometrics , state income tax , gross income , tax reform , public economics , mathematics , market economy , mathematical analysis
This paper develops a model of optimal income taxation, estimates C hina's skill distribution function based on the data from a recent survey, and finds the optimal marginal and average income tax rates for C hina. It shows that both the optimal marginal and average tax rates increase at decreasing rates, and become rather flat at high‐level skills. C hina's current marginal tax rate increases at a decreasing rate at low‐level skills and increases at an increasing rate at high‐level skills. To be optimal, the low income groups in C hina should be subsidized, the tax threshold should be raised, and the highest marginal tax rate should be reduced.