On Fiscal Policies Supporting Low-Income Class In China

Since the Reform and Opening-up in 1978, the income of China's residents on the whole has been rising continuously, but at the same time, the gap of income distribution among different classes has also been enlarging continuously, especially between the high-income class and low-income class. So reduce the income gap,increase the low-income class's living standard have become more and more necessary.The purpose of the study is reducing the income gap and increasing the low-income class's welfare.Firstly, the paper described the size and the characteristics of the low-income class in cities and countries; Secondly, based on the time series data of Decile Ratio(per capita disposable income ratio) between the high-income class and low-income class,the proportions of the investment in public expenditure(education, health, social security and financial subsidies) to GDP and the proportions of taxes revenue to GDP from 1994 to 2007, this research project assessed the impacts of public expenditure policy and China's tax policy on income distribution by means of Granger Test. The econometric analysis shows that there seems no cointegration beween education scale and Decile Ratio, but there exist positive correlations and cointegrations betweent Decile Ratio and health scale, as well as social security scale, and negative correlations between financial subside scale and Decile Ratio. this result also means that the public expenditure policy(except financial subside) enlarged the income gap between low-income class and high-income class rather than reducing the gap. On the other hand, the econometric analysis on China's tax policy's result shows that indirect taxes made the tax burden of low-income class higher than high-income class ,because the indirect taxes can easily be shifted and the taxes themselves exist defects. Though the direct taxes burden can't be shifted, the low-proportion of direct taxes and the defects of income tax,inheritance tax became the main reasons that can not adjust the income gap fully. Thirdly, in consideration of the limitation of the time series data (just from 1994 to 2007), there may exist error on the econometric analysis. So based on the econometric analysis, this paper made the further analysis on the structure of the fiscal policies,and found the reasons that harmed the low-income class's living standard and enlarged the income gap between low-income class and high-income class.The main suggestions on increasing the welfare of low-income class are as follows:(1)Constitute the financial assistance policy inclining the low-income class, perfect the education policy, health policy, social security policy and financial subside policy.(2)Construct the tax policy system that minimize the tax burden and increase the revenue of the low-income class. Reduce the daily necessities'tax burden and consummate the tax preferential policies for low-income class,including the policies on promoting the employment and buying house,.(3)Enhance the compliance and the supervision of fiscal institution. Firstly, strengthen the tax-related information monitoring system, increase the compliance of tax payers; Secondly, take the supervision of finance funds seriously, to ensure that the fiscal Support policies are used equally.