Study On The Redistribution Effect Of Fiscal Policy In Transitional China

As the economic growth will not bring about welfare growth simultaneously, the income redistribution effect of the public policy is full of value. But as far as the effects are concerned, the fiscal policy seems to be a reason of the income inequality instead of a solution in many developing countries, compared to most developed countries.In the stage of transformation period, China has achieved huge success in economic. But the increasing gap of income has showed more and more negative effect to social harmony and steadiness, and it's becoming one of the most important public issues. The Chinese government has adopted a series of public policy to strengthen its redistribution function. But unfortunately, the results seem to be in another way as the income distribution is growing larger and larger. What has weakened the redistribution function of the fiscal policies and how to design an effective institution to turn around the phenomenon?This paper argues:structures of social divisions, economic decentralization and political centralization system, as well as relational social contract are the three socio-economic characteristics that induced imbalance in the financial system and weakening fiscal redistribution function. The economic system of China has been experiencing profound changes, but the political and social system is kept as before, which constituted the most prominent characteristic of China in transition. The social and economic pattern of China has three important features:split in society structure, decentralization in economic and centralization in political, relational social contract. All of these have excited rapid economic growth and promoted capital accumulation in the early stage of transformation. As time goes on, this institution arrangement has induced the formation of indirect tax-based tax system and caused the intergovernmental financial imbalances, inefficient allocation of public resources as well as biased policy issues, which would affect the redistribution function directly or indirectly.On the basis of the theoretical analysis, the paper further analyzed the microeconomic effects of tax policy, intergovernmental fiscal transfer payment, transfer payments for poor and public service spending, and then gave the optimal policy. These include:(1) As the further bonus brought by tax reform is limited, the more effective ways for income distribution is to change the tax configuration from centered on indirect tax to direct tax. The third chapter constructed a quantitative method to identify the marginal effect of tax system adjustment. Meanwhile, it empirically estimated who is actually in charge of bearing the tax burden using the county data from1998-2011, verifying how the adjustment of taxation institution affecting the intertemporal income distribution. The results show that:Firstly, the burden of agriculture tax, business tax as well as non-tax revenue, is almost assumed by poor class, while the personal income tax is neutral. On the other side, the rich class bear more tax burden of value-added tax, corporate income tax, deed tax, and urban maintenance and construction tax. Accompanied by continuing adjustment of tax system, the taxation tends to be more fairly, the tax reform bonus is shared more by poor class.(2) Under the relational social contract, the relation capital possessed by local governments will have an effect on the inter-governmental fiscal transfers. By analyzing the experience of the Mayors and Party Secretaries between2004-2007, the fourth chapter builds an annual relation capital index, which helps to find out whether the relation capital possessed by them will have an effect on the fiscal transfers. Besides, the paper also checks effect variation in different institution environment and the validity of the fiscal transfers. The study shows:Firstly, the prefecture whose mayor or party secretary having relation capital can get more fiscal transfers than those non-related ones, holding others constant. Secondly, this effect of relation capital is stronger in the prefectures whose institution environment is worse. Thirdly, for different transfer types, the effect brought by relation capital is not entirely the same. As for the general transfer, relation capital plays an effective role of signal reflection; while for the special fiscal transfer, the relation capital jams the policy-making process and causes the loss of allocation efficiency.(3) Because of the "leakage of funds", it is proved to be not a fully-effective anti-poverty method to transfer payments through multi-layer government and allocate anti-poverty funds by the primary government under the economic decentralization and political centralization system in China. The fifth chapter further found that even the public transfer payments gotten by the poor also couldn't reduce poverty effectively because of crowding out the private transfer payments and guiding to more dependent on it, based on the data in the CHNS database from1989to2009. Averagely, one unit public transfer payments will extrude0.39units of private transfer payments and reduce2.71units income from work; furthermore the "crowding-out effect" and "inductive effect" is more serious for the poorer. It's an effective method to provide the basic public services, such as society medicare, water supplying and sanitary engineering, for the poor and it could directly reduce poverty and protect the individuals from poverty indirectly by enhancing human capital. These two mechanisms are still valid under different conditions. The policy implication is that it will be a more efficient method to protect the poor from poverty by supplying the basic public services to them.(4) In transitional China, the unequal public service policies derived from the structures of social divisions, leads the poor condition continuing among generations.'Chinese Dream'should provide equal opportunity to assure that all the people can get gains if they pay. But to what degree did the public service policies create a 'opportunity-equal'social? The sixth chapter used the CHNS micro-database dating from1989-2009, analyzed the intergenerational mobility condition in China and checked how much could the access of public services could change it. The results showed that solidification among classes was severe, and the middle class is facing a huge risk of being inferior. Fortunately the tendency is weakening, in another word, the probabilities for the under-class to go-upwards are increasing. The public services such as education, medical treatment could help people go upwards by helping capital accumulation. The Chinese government did not provide equal opportunity for the inferior class to share the same public services and blocked the channels for upward mobility, which leads the poor condition continuing among generations. To create an equal society, the government should provide the entire population the same public services fairly and without discrimination.The fiscal policy hasn't been effective to equal income as a result of the fixed institution design. Finally we get some conclusions:First, the economic and social infrastructure should be made united and standard. Second, the direct tax tool should be more emphasized as a way to norm the tax system. Third, make the inter-governmental transfer more regular as well as increasing the ratio of financial transfer payments. Forth, adjust the pattern to alleviate poverty and provide the primary public services equally.