Perfecting Redistributive Function Of Personal Income Tax In China

It is urgent to perfect redistuibutive function of personal income tax in the context ofexpanding income gaps in China.This paper goes deep into an empirical analysis of theprogressivity and redistuibutive effect of personal income tax in China during2002to2011.The empirical results show that the overall redistributive effect of personal incometax strengthens in the two periods of2002-2005and2007-2010, and weakens in2006and2011.This is because the average tax rate drop shapely even though the tax progressivityincreases substantially in2006and2011, which finally leads to the decline in the overallredistributive effect of personal income tax. The redistributive effect of all incomehouseholds is positive during2002-2011.However, the increase of the income share ownedby middle and upper middle income households is significantly higher than that of theincome share owned by lowest and low income households.Obiviously, redistributiveeffect of personal income tax benefits the middle and upper middle income householdsmost.The empirical results based on the residual income progression during2002to20011shows that the applicable tax rate will be approximately proportional if ones’s incomecomes to a higher income households level.Accouding to the empirical results, this paperdoes a multi-angle analysis of the redistuibutive function of personal income tax inChina,and then puts forward some policy recommendations.