China’s Income Redistribution: Determinants Of Preferences, Policy Formation And Effects Caculation

This thesis systematically explores three dominating parts in the logical chain onissues of income redistribution in China, which is presented in three logicallyconnected parts.Part one focuses on the Preferences for Redistribution. It starts with the originalquestion that whether redistribution “should” and “have to” exist. Based on thediscussion that whether redistribution “should” exist, this paper preliminarily derivesthat redistribution “have to” exist in the sense of social evolution. Sequentially, thispaper proposes a four-motivation framework. They are Economic Interest Motivation,Risk Aversion Motivation, Fairness&Faith Motivation and Reputation&IdealMotivation. Various factors take effect through one or more of Motivations. Thefactors mainly include identity characteristics, social and economic status, educationlevel, mobility expectation, employment status, mobility experience, belief in fairness,culture&social norms, ideal&religion, other possible factors. Under theFour-motivation framework, it adopts the data from CGSS to analyze Chinesepeople’s specific features on this issue. It’s found that preferences for redistributionare showing significant differences due to the identity characteristics, and factorsunderlying the four motivations are influencing the preferences as well.Part Two takes insights into the formation of redistribution policies, the basicfacts of China’s governmental redistribution policies and how these policies affect theincome inequality. It first discusses the recent reform on the Personal Income TaxLaw, and finds the policy formulation abides by the three steps: agenda setting, publicdiscussion and final decision. The formation process are signaling the pattern of“participatory governance”, but can’t still meet everyone’s demand; thepolicy-making speed indicates a conflict between “reform gradually” by governmentand “reform radically” by the public. There’s still no institutional guarantee to keepthe response to the public at a high level, which is waiting to be further stepped. Thispaper then turns to summarize the basic facts of governmental redistribution policies,which are defined as three parts, such as social security system, personal income tax system and equalized public services. The institutional redistribution system isperfecting gradually and the scales of redistribution programs are increasing while theratios are showing complicated features. The third subpart sheds lights on themechanism that how various types of redistribution programs take effects on theincome inequality conditions. It’s found that the nature of horizontal redistribution isthe transfer from the rich to the poor, with a positive effect; longitudinal redistributionis reducing the fluctuation in a life circle and can also be attributed to horizontalredistribution in real effect. Through derivation using Gini index, it’s found that thecondition that allows programs to be reducing income inequality is easily met.Results from the numerical simulations show that taxing programs in a fixed rate withan upper limit line will be surely functioning as a negative adjustor, meaningincreasing the income inequality. Other programs, such as progressive tax, relief andwelfare, equalized public services, are standing in the opposite position.Part Three works on the calculation of redistribution effects. It starts withsummarizing on methodologies on the calculation of redistributive effect. This thesisbelieves using micro-data instead of macro-grouped data, employing “sequentialcomposition” method will be more suitable. It also emphasizes the importance ofbuilding pre-post income and the handling of details in the process of calculation.Upon the summarizing preparations, this thesis is doing the calculations using bothurban and rural micro datasets from typical provinces and macro dataset from thepublic source. On the whole, the redistribution policies have been exhibiting positiveeffects along the aimed years. It means, due to the redistribution programs, the extentof income inequality is smaller than it should have been. Results from the urban dataindicate that the whole redistributive effects are significantly positive, narrowing theincome inequality. Redistributive effects of Social Security Expenditures are negative,while those of Personal Income Tax and Social Benefits are positive. It’s found thatredistributive effects of social benefits are dominating the whole effects. As to thespecific programs, Old-age Pension is absolutely the leading part, while others aretrivial. The positive programs are Old-age Pension, Personal Income Tax, SocialRelief, while the negative ones are personal expenditure parts of Pension Fund andMedical Fund. Unemployment Fund, Other Social Security Expenditure and Unemployment Insurance Benefit are insignificant. Results from rural area inShandong province tell that the whole redistributive effects and those of all specificprograms are positive, but with very small amounts. Arrange the programs in size ofredistributive effects from largest to smallest, and the list will be Direct GrainSubsidy Income, Poor-support Fund, Retired Payments or Old-age Pensions,Reimbursement of Medical Expenses, Pension, Relief, Disaster Relief Fund.Policies indications on China’s income redistributions are as follows.1)Strengthen the intensity of redistribution, with special attention onto rural areas.2)Redistribution policy-making process should be a combination of “top-level design”and “participatory governance”.3) Redistribution policies should be based onproviding basic public services and building a security system of “insurance plusrelief”.4) Step out of the trap of redistribution, and pay more attention on the fairnessof primary distribution.The novelty of this thesis can be summarized below. First, it preliminarilyderives the inevitability of redistribution in the sense of social evolution. Second, itbuilds a framework of four motivations thus to understand the preferences forredistribution in a rooted sense, which promotes the issue into a further depth. Third,with a combined perspective from political science and economics, it demonstratesChina’s features on redistribution-type policy-making process, taking the recentrevision on Personal Income Tax Law as an example. Fourth, it finds a way todescribe the mechanism using formula derivation and numerical simulations,profoundly clarify the nature of redistribution programs. Fifth, it calculatesredistributive effects of governmental redistribution policies in China, accurately andcomprehensively. It’s been done using the sequential composition method andmicrodata from Tianjin City and Shandong Province, after a review on methodologiesand existing researches.