An Empirical Analysis With Laffer Curve Of Individual Income Tax In China

Arther B. Laffer, an economist of supply school in United States, uses the economic metering method to propose reflecting the relation between the tax rate and tax revenue. As the core theory of supply school theory, Laffer curve is important for our economic activity.Basing on the model of Feige & Mcgee (1983) and doing proper change, we set up the framework of models. Utilizing the existing statistical data of China, we calculate the optimum tax rate of the Individual Income Tax of our country. The result of study shows: the real average tax rate of Individual Income Tax at present is much lower than the optimum tax rate having been estimated, so the improvement of the average tax rate will bring enormous increasing of the tax income in theory. No matter processing long-term forecast, or analyzing the potentiality of the Individual Income Tax at present, we can realize the important position of this tax and the enormous potentiality.The conclusion of this article is: Both the theory and the practice have shown the enormous potentiality of the Individual Income Tax. It's very important to make great efforts to improve average tax rate of Individual Income Tax and make it become an even more important financial source of revenue, in order to change the current tax system structure (Circulate tax lopsided progressively in weight).