Income Distribution Effect And Labor Supply Effect Of Payroll Tax Reform

The ability of the payroll tax system to adjust the income gap has been a hot topic in the economics.The academic community divides the income gap adjustment ability of the payroll tax system into income distribution effects and labor supply effects according to whether there is a change in labor supply behavior.Existence of income distribution effects of payroll tax regardless of whether or not reform,but the labor supply effect will only appear when the tax system reforms.The income distribution effect and labor supply effect of payroll tax are the important decision-making basis for formulating the payroll tax policy.In 2011,China's sixth revision of personal income tax provided scarce “natural experiment” opportunity to study the labor supply effect of the payroll tax system.This paper takes the 2011 payroll tax reform as an opportunity to study the income distribution effect and labor supply effect of the payroll tax reform.The payroll tax reform has multiple effects of regulating the income gap.First,the income distribution effect of the payroll tax reform take effect.This effect is the adjustment effect of the income gap played by payroll tax reform without labor supply response.Second,the labor supply effect of the payroll tax reform take effect.The labor supply effect is the ability to adjust the income gap played by the payroll tax reform under the condition that the laborer changes the labor behavior.In addition,some scholars believe that there should be general equilibrium effects and long-term effects.However,from the research results,the policy effect of wage tax reform to regulate income gap is mainly based on income distribution effect and labor supply effect,and the general equilibrium effect and long-term effect are weak.In the empirical research,the changes in the income gap caused by mixture of changes in the labor market during the implementation of the actual policy and other social and economic factors.It's increase difficulty of identification,separation and measurement of the income distribution effect and the labor supply effect.Therefore,this paper combines Shapley value decomposition and micro-simulation method to separate income distribution effect and labor supply effect from the mixture of various effects,evaluate the effect of payroll tax reform,and provide decision-making basis for formulating payroll tax policy.First,studied the income distribution effect of the payroll tax reform.In Chapter 4,derived the decomposition model of the income distribution effect of the payroll tax reform,and successfully identified and calculated what the income distribution effect of the payroll tax reform.The model adopts a nested method of various research methods such as Shapley value decomposition method,micro simulation method and update method.In order to study the income distribution effect of payroll tax reform within and between different income level groups.The model is derived from the additive decomposability of income inequality measures and the income distribution effect calculation model.Applying the above two income distribution effect calculation models,the calculation results of the overall and group income distribution effects of the payroll tax reform are obtained.The results of the analysis show that the income distribution effect of the payroll tax reform has the effect of reduce the income gap,but the degree of improvement has a smaller share of the change in the total income gap.In the different positions of high income,middle income,middle income and low income of income distribution,it accounts for 8%-15% of the total improvement.The calculation of the income distribution effect of the group's payroll tax reform shows that the payroll tax reform has a very small improvement in between groups.Secondly,proposed the procedure for formulating the optimal payroll tax table.The program provides an academic research outcome of the income distribution effect to form an implementable policy approach.The program has three steps: the first step is to complete the conversion of the optimal tax to the tax form.In this step considers the Pareto parameter estimate and the income distribution quantile selection candidate.The second step is to calculate the optimal tax rate.The tax rate is calculated from the compensatory and non-compensatory tax labor supply elasticity,income effect and consumption tax rate of the highest income group.The third step is to examine the possible changes in social equity and efficiency after the implementation of the optimal tax rate,and select a better tax rate for policy implementation results.After these procedures,one can get an optimal tax return that balances fairness and efficiency.The calculated optimal payroll tax table is simulated by the real income distribution in 2012.The virtual new tax form is superior to the real tax form in terms of household income inequality,average tax burden and social welfare value evaluation criteria.Third,the labor supply effect of payroll tax reform is identified and calculated.In Chapter 6,the identification and calculation model of the labor supply effect of wage tax reform is established.The model combines Shapley decomposition method,micro simulation method and discrete labor supply model.In the model,the labor supply discrete model and the wage equation are used to predict the counter-factual labor income.The micro-simulation update method is used to predict the post-tax income distribution.After obtaining the required counter-fact distribution,the Shapley value decomposition method is used to calculate the wages.Applying the model to the CFPS dataset,calculated the labor supply effect of the payroll tax reform.The calculation results show that the labor supply effect of wage tax reform has improved the income gap overall,and the female labor supply effect is less intense than that of men.The labor supply effect is most improved when the income distribution is close to the majority.The 2011 payroll tax reform encourages individuals to increase labor supply,increase labor income,and narrow the income gap.Therefore,the future payroll tax reform should reduce the wage tax burden of low-and middle-income earners.Finally,analyzes the impact of educational level of workers on the labor supply effect of payroll tax reform.For sake of the distribution to distribution analysis,a decomposition method based on covariate-based quantile regression model(MACHADO-MATA method)is introduced.This method can analyze the contribution of the marginal distribution to the change of the target distribution.The model decomposes the payroll tax labor supply effect into educational conditional effects and structural effects according to the differences in the educational level of the workers.Applying the model to the CFPS dataset accomplished the decomposition.The analysis results show that the conditional effect has the effect of narrowing the income gap,and the structural effect has the effect of expanding the income gap.The conditional effect plays a leading role in the labor supply effect.The reason is that the wage income of workers in the junior high school and below education level is growing fast,narrowing or even equalizing the income gap between high school and high school.There is still a large gap between the wage income of laborers with bachelor degree or above and those with other education levels.Therefore,when the proportion of laborers with bachelor degree or above is expanded,the structural effect will widen the income gap.Future payroll tax reforms should consider increasing tax breaks for low-education populations.The results of research may helpful to understanding of the income distribution effect and labor supply effect of the payroll tax reform,and contribute to the formulation of the payroll tax policy.These work has theoretical and practical significance.