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Impacts of Two Tax Reforms on Inequality and Welfare in China
Author(s) -
Shen Yangyang,
Li Shi,
Wang Xiaobing
Publication year - 2021
Publication title -
china and world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.815
H-Index - 28
eISSN - 1749-124X
pISSN - 1671-2234
DOI - 10.1111/cwe.12377
Subject(s) - economics , welfare , tax reform , state income tax , gross income , indirect tax , dividend tax , value added tax , labour economics , china , double taxation , direct tax , inequality , income tax , distribution (mathematics) , ad valorem tax , income distribution , public economics , market economy , mathematical analysis , mathematics , political science , law
This paper takes stock of the existing literature on taxation and presents a framework to evaluate the impacts of tax policy reforms from the perspectives of progressivity and social welfare. It applies this framework to examine two tax reforms in China and finds that (i) the abolition of the regressive agricultural tax in 2005 has significantly improved the social welfare of rural residents; (ii) the increase in the income tax thresholds in 2011 increased progressivity but reduced the overall income tax share of total taxation. When the majority of the taxpayers are in the lower tax bracket, progressivity has little real impact in improving income distribution.