Income Distribution Effect Of Individual Income Tax And Its Mechanism

With China’s economy changing from high-speed growth stage to high-quality development stage,structural problems are highlighted.The CPC Central Committee and the State Council have proposed to pursue a positive fiscal policy,implement a series of preferential measures for tax reduction and fee reduction,and stimulate the vitality of the micro-market subject.The new tax amendment passed in 2018 marks the beginning of the deepening reform of China’s tax system.Compared with previous tax reforms,this tax reform has not only the long-term thrust of widening the gap between rich and poor in China,but also the mediumterm and short-term catalysis of the intensification of trade friction between China and the United States and the persistent weakness of domestic consumption.The ultimate goal of this tax reform is to stimulate the vitality of micro-subjects and promote high-quality economic development.Therefore,how the future personal income tax system will stimulate the vitality of micro-subjects and promote consumption to drive the economy through the tax system,so as to solve the contradiction between the uneven distribution of labor income,capital income and wealth in China,is the key problem that needs to be solved urgently in the current social development,and also puts forward new requirements and challenges for academic research.Limited by data conditions,relevant studies mostly use crosssectional data to depict the income redistribution effect brought about by individual tax reform.Therefore,the main consideration is the static change of income directly caused by the change of tax structure,while ignoring the possibility that tax incentives will further change the pattern of income distribution by changing the vitality of micro-subjects.Therefore,academics generally believe that the past personal income tax reforms in China have not fundamentally improved the income distribution,and its function of regulating income distribution is limited.From this point of view,this paper innovatively studies the optimization design of personal income tax system to stimulate the vitality of micro-subjects.This paper comprehensively evaluates the income redistribution effect of the personal income tax reform in 2011 and 2018 by using the national representative micro-data CFPS 2010-2016 and CHFS 2011-2017 panel data,and deeply discusses the mechanism factors.This study mainly involves three aspects:(1)analysis of the impact of tax reduction on the labor supply of residents and the allocation of household assets(micro-decision-making impact);(2)discussion of the impact of individual tax policy on income sources and income structure,investigation of the multiplier effect of tax reduction on the growth of household income level(micro-income impact);(3)evaluation of income redistribution effect of individual income tax,from the tax system The static effects of objective changes and the dynamic effects of subjective changes in the above-mentioned personal behaviors are comprehensively evaluated in terms of the policy effects(global income distribution)of China’s personal income tax system in alleviating income inequality at the stage of high-quality development.The content logic of the three research themes in this paper is closely related,and the research ideas are advanced in accordance with the logical chain of "individual income tax system change influence of micro-subject vitality change of income sources and income structure change of overall income distribution pattern".The former is the theoretical mechanism and micro-basis of the latter.The article is divided into seventh chapters,following the research ideas of finding problems,raising problems and solving problems.The main contents of each chapter are as follows:Chapter 1 is the introduction of this paper.It introduces the research background,significance,basic ideas and research framework,research content and research methods of this paper,and points out the innovation of this paper.Chapter 2 mainly introduces the reform background of the personal income tax system in China.Chapter 3 reviews the literature at home and abroad.This chapter first introduces the domestic and foreign scholars’ research on the effect of individual tax redistribution,which is divided into the theory of income redistribution of individual tax and the empirical evaluation of the effect of individual tax redistribution.Then it reviews the literature on the impact of individual tax on micro-subject decisionmaking from the aspects of research methods,research contents and research data by domestic and foreign scholars,and expounds the latest progress of foreign literature and the shortcomings of domestic literature.Through reviewing the literature,we can further find the innovation and research value of this paper.Chapter 4 analyses the impact of tax reduction on labor supply and household asset allocation in 2011,further analyses the incentive efficiency of tax reduction among different groups,and explores the micro-subject vitality brought about by the reform of personal income tax.Chapter 5 analyses the impact of tax reform on income sources and income structure changes of residents in 2011 on the basis of micro-incentive effect brought by tax reduction in the previous chapter,and further compares the differences between different taxation modes(individual industrial and commercial households and wage workers)and different family burdens(dependency ratio and cost of living)to build a comprehensive and classified individual Institute in China.Tax system provides policy reference.Chapter 6 links the increase of individual economic behavior brought about by tax reduction with the change of income source and structure.It separates the contribution of objective change of tax system(static effect)and subjective adjustment of individual behavior(dynamic incentive effect)to the redistribution effect of individual income tax,so as to comprehensively evaluate the redistribution effect of income in the tax reform of 2011,and as a framework,to the ongoing process.The income redistribution effect of tax reform in 2018 is estimated.Chapter 7 summarizes the research contents and conclusions of this paper,and further puts forward policy recommendations and future research directions.The main conclusions of this paper are as follows:Firstly,this study concludes that the reform of personal income tax can stimulate the vitality of micro-subjects.Tax reduction can improve the supply of labor and promote the allocation of household assets.In particular,the effect of tax reduction varies among different groups: the individual labor supply elasticity with fixed working hours and wage system is small,the local labor supply elasticity with strict tax supervision is large,and the low-income group has more improvement in the supply of labor because of the substitution effect.Individuals with different family burdens are affected to different degrees by the labor supply.The elasticity of the labor supply of families with children or old people is smaller,and the labor supply of families with mortgages is more affected.The impact of tax reform on household asset allocation is different because of the original accumulation of households and the performance of individual characteristics.High-asset households prefer to participate in real estate,while low-asset households mainly participate in the stock market.This discovery provides a strong policy basis for the connection between the reform of personal income tax and the labor market and capital market.Secondly,because of the micro-incentive effect of the above tax reduction,the income of Chinese residents generally increases.Due to different sources of income growth rate is different,property income growth faster than labor income,resulting in a decline in the proportion of labor income,property income increased.In particular,the effect of tax reduction varies among different groups: high-income,high-asset and high-skill groups enjoy more increase in property income;on the contrary,low-income,non-housing and low-tech groups mainly show an increase in labor income.Individual business households taxed annually,households with maintenance and housing loans,and residents in areas with higher living costs have greater flexibility in their labor income.Finally,tax incentives bring about labor supply and investment effects by changing individual behavior and decision-making,resulting in increased income and further changing the pattern of income distribution.If we only consider the static effect of tax system changes,the two tax reforms in 2011 and 2018 have limited adjusting effect on income distribution.However,after considering the incentive of tax reduction,tax reduction and exemption brings about the increase of labor supply,the increase of residents’ income level and the enlargement of middle-income groups,the improvement of income distribution,and the improvement of income fairness as well as the realization of efficiency.Based on the above conclusions,this paper puts forward the following policy suggestions: First,further improve the personal income tax system,combine fiscal and taxation policies with public policy functions while tax reform,promote more groups of employment through active labor market policies,such as employment support plan,professional skills training plan,further stimulate the vitality of the labor market and promote residents.Income increase;Second,move towards comprehensive and classified income tax in the classified income tax system.At the same time,the policy should also be inclined to low-income groups,such as the implementation of negative tax rate policy,transfer payment subsidies,and further improve the social security system;Finally,in the implementation of special additional deductions,tax authorities may face the collection and management mechanism because they are directly faced with the taxpayer’s collection and management mechanism system,requiring tax authorities to grasp the income and property of natural persons,marriage and maintenance,and other information,may face the collection and management mechanism.The high cost of information integration.Therefore,in the future,China should also make efforts to improve taxpayers’ tax awareness,strengthen the ability of tax collection and management and tax inspection,so as to ensure the normal operation of the mechanism of adjusting income distribution gap by individual income tax.