The Effect Of Tax Regulation On Income Distribution Among Residents In China

Since 1978 when the reform and opening up policy was adopted in China, Chinese residents have witnessed a huge rise in their income along with the rapid increase in China's GDP. However, noticeable issues have occurred in income distribution among Chinese residents, evidenced by the unquestioned fact that the Gini coefficient has risen above the international alert line of 0.4. Income is the source of people's livelihood. Income distribution problem, not only is the eternal theme of the social and economic development in the process of concern, but also the incentive for many social contradictions. Due to the existence of market failure, the initial distribution of the market itself can not solve the problem of income distribution gap continuing to expand. It is necessary to rely on the government's redistribution and the voluntary distribution of the public. However, the voluntary allocation of the public depends entirely on the will of the public, the scope of its role is very limited. In order to solve the problem of income distribution gap continuing to expand, it must rely on the redistribution of the government. Theoretically speaking, taxes, as an important regulation means adopted by the government for the purpose of income redistribution, have played a significant role in the regulation of income gap among residents. Nevertheless, the existing tax system structure, with turnover tax as main tax source, proves to be unsatisfactory in narrowing the gap between the rich and the poor and individual income tax produces a very limited role in regulation; the regulatory effect of consumption tax should be enhanced and property tax system is not sound enough. Thus, it has become a major theoretical and practical topic to urgently be solved about how to enhance the income distribution effect of taxes, narrow the gap in income distribution among Chinese residents while increasing national financial revenue so as to manifest the equality and justice of taxation and promote the harmony and stability of the whole society.In theory, tax has the function of adjusting income distribution. This paper focuses on the theoretical basis, regulation means, conduction mechanism and limitation of tax regulation for the regulatory effect of taxes on income distribution among Chinese residents, and makes an analysis of the current status of tax regulation on income distribution among Chinese residents and concludes the main problems existing.In practice, do taxes play its proper regulation on income distribution among Chinese residents? Based on the perspectice of the whole, this paper makes an empirical analysis of the overall income distribution effect of taxes through the establishment of VEC model. Result indicates that taxes play a role of reverse regulation on income distribution among residents, whether in the long or short run, and it will experience increasingly reduced reverse regulatory effect for a long time.Why do taxes present a reverse adjustment in regulating income distribution on the overall effect? In order to explore the causes, this paper mainly analyses income tax, property tax and turnover tax from the perspective of structure. First of all, this paper makes an empirical analysis of the individual income tax on income distribution among residents from multiple perspectives. Result shows that individual income tax produces a weak regulatory effect at different income levels and in different areas and element structures and a reverse regulatory effect in different sectors. The second, this paper makes an empirical analysis of the regulatory effect of China's property tax on income distribution among Chinese residents using error correction model and a special study of the distribution effect of major tax types including real estate and contract taxes. It is found that property tax produces a weak regulatory effect on income distribution among residents. Once again, this paper makes an analysis of the regulatory effect of China's turnover tax on income distribution among residents. Result shows that although both value-added and consumption taxes produce a reverse regulatory effect and sales tax a positive regulatory effect, they cannot fully off set the reserve regulatory effect of value-added and consumption taxes, thus leading to obvious reverse regulatory effect caused by turnover tax. Although individual income tax and property tax present a positive regulatory role in regulating income distribution, but because of its regulating effect is extremely and not enough to off set the reverse regulation of turnover tax. So taxes taxes play a role of reverse regulation on income distribution among residents.The innovation points of this paper are mainly reflected in the following aspects:First, this paper makes a systematic study of tax regulation on income distribution among residents from the perspectives of entirety and structure. Currently, Chinese scholars focus more on the effect of a specific tax or tax type over income distribution but less on the overall effect of tax regulation on income distribution among Chinese residents, with a lack of systematic study in this aspect. Thus, this paper makes a systematic study regarding it.Second, this paper makes an empirical analysis of the income distribution effect of individual income tax from multiple perspectives. Most of the studies in the Chinese academia concentrate on the redistribution effect at different income levels and there is few studies on the regulatory effect of such tax in different sectors, areas and element structures and even fewer overall and systematic studies on the redistribution effect of individual income tax. In view of the fact, this paper analyzes the effect of individual income tax on residents' income distribution from multiple perspectives including income level, area, and sector and element structure so as to obtain a more complete and systematic analysis and make conclusions more accurate and scientific.Third, this paper takes the agricultural trade market, which is quite popular in urban areas, while analyzing the effect of value-added tax on income distribution of residents and corrects some indicators regarding such tax according to survey data. In foreign countries, a lot of empirical analysis has been made on some practical issues such as value-added tax evasion and tax preference when the income distribution effect of such tax was studied. However, domestic studies only stay at the theoretical level and ignore practical conditions. Thus, this paper takes agricultural trade market into account and makes an empirical analysis of the income distribution effect of value-added tax on residents.