| Introduction (Abstract)1.1 Topic selectionIncome distribution is a perpetual theme in the science of economy, and it becomes a focal point in the society where great economic reforms are taking place or where the economic system is experiencing a transitional period. As Arthur Lewis, pioneering scholar of Development Economics and Nobel Prize winner, pointed out, "changes in income distribution is a most political factor in the process of development, that will easily incur jealousy and commotion among members of a society. It is impossible, therefore, to make practicable policies without a good understanding of why these changes take place and what their effects are."Throughout the 80s and the 90s of the 20th century, income gaps in China have widened considerably. In a report by the Strategic Department of the State Council, it is pointed out that "The imbalance in income increase is likely to incur social incredibility, and it is beginning to impede the social and the economic development of China." The problem calls for serious attention.Mr. Deng Xiaoping once said: "large income gaps are not suitable for a socialistic country, yet it is the kind of problem that comes naturally when the rich get richer, and the poor become poorer. One way to solve the problem is to levy more taxes on those who have very high incomes, and to use the taxed money to support the development of poorer regions. Yet on second thought, at present it is still too early to practice the method for it may bring with it such side effects as encouraging equalitarianism and dampening the development of rich regions...it is imaginable that by the end of this [20th] century, China will be adequately prepared for the adoption of the method. By then, capital and advanced techniques will be transferred from developed regions to underdeveloped regions by way of taxes and technical assistance...in a word, I foresee that in the near future, the narrowing of large income gaps in China will be brought to our working agenda." Now, at the beginning of the new century, it is high time that we deal with the widening income gaps, just as Mr. Deng had predicted.Taxation is an important measure of economic controls. Under the Socialistic market economy, taxation functions as a "fundamental force thatenables the government to wield macro controls over the distribution of resources"; it is, in other words, a "stabilizer" of social and economic development. The regulative function of taxation on income gaps, therefore, makes a very important part of the government's capability of macro economic controls in China.Below I have listed several questions, both on theoretical and practical levels, that we must clarify before we understand the function of taxation in regulating income gaps.?What is the nature of the main problem(s) in the existing income distribution mechanism of China? In what stage of social reproduction are the majority of income gaps formed? How would the present income gaps develop in future??What are the present situations of the Government's macro and micro economic regulation and controls on income distribution? How would we locate the individual income regulative measures and taxation regulative measures within the system of Comprehensive Social Income Distribution Controls??How does the present taxation system function in regulate income gaps? How to make the system work better for the same purpose??In the socialistic market economy, what are the objects, principles and tasks of income distribution regulation? How to improve the existing taxation practices in order to facilitate the establishment of a taxation system and an income distribution mechanism that best suits the need of the socialistic market economy?1.2 Previous studies1.2.1 Studies by western scholars on the regulative function of personal income taxUnder the market economy, social incomes are decided by the market income distribution mechanism, while the government's role in income distribution regulation is to provide people o...
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