An Empirical Analysis Of The Personal Income Tax’s Redistributive Effect In China

The economy of China has got a great development since the Reforming and Opening. At the same time, the income gap has become bigger and bigger, which will be a barrier to the social stability. In order to solve the problem, the government has taken some measures, such as to modify the Social Security, the Personal Income Tax, carry out the Property Tax and so on. For the Personal Income Tax, the deductions have been changed from800RMB to1600RMB (in2006) and to2000RMB (in2008), and in2011it was changed to3500RMB, and the tax rate bracket was changed from9to7.To some extent, these measures were reaffirmed by people. But since the Personal Income Tax is quite young in China (it was carried out in1980) and the taxation system still have some flaws and we Chinese hasn’t draw a high tax consciousness, people have doubt about whether the Personal Income Tax help to solve the income inequality problem and if it does, how much it help to narrow the income gap.Professors abroad started to analyze the redistributive effect of Personal Income Tax in1920s. Although in recent years domestic study about this aspect become more and more, most of them are just theoretical analysis, and empirical research is much less and superficial. Besides that, since our country adopts the Classified Income Tax System, we should respectively research the different tax applied to different income, which is quite scarce currently, and that is the way this paper will take.This paper has five parts. The first part is introduction, which will tell us the existing problems, some concepts, the study scope, literature review, paper structure and so on. The second part will analyze the income inequality in China. Firstly we will introduce the method used to measure the income inequality and then will make the empirical result. The third part will analyze the redistributive effect of the Personal Income Tax, which is measured by the difference between Gini coefficient before and after the Personal Income Tax. Then the forth part decomposes the redistributive effect and try to analyze every component of the tax system. The last part is the suggestions, which includes how to reform the Personal Income Tax and modify other systems like the Social Security.