Study On Coordination Of Tax And Transfer Payment In Redistribution In China

All along, economic development and social equity are important topics in the study of fiscal discipline. In recent years, with the comprehensive promotion of reform and opening-up as well as the steady development of urbanization construction in China, the economic output of our country has jumped to the forefront of the world; along with the per capita income level has experienced a process of rapid growth. Naturally, the overall quality of life has been improved for most people. However, the process of creation and accumulation of wealth is also the process of gradual differentiation. As data shows, there has been a great gap between the rich and the poor as the result of income distribution, which cannot only been attribute to the initial distribution of market factors, but more for the unfavorable regulation of the government by using finance and taxation policy.In order to reduce the income gap after the primary distribution, the government use tax and transfer payment as the main fiscal policies. Taxation which focusing on rich people, is the process of the flow of funds from the residential sector to the government; while transfer payments which focusing on poor people, is just the opposite. The two measures mutually cooperate and complement in the aspects of the flow of capital, the function link, the restriction conditions and the policy effect, to adjust the income distribution into a more fair pattern.In recent years, there has been different opinions emerged for the research of redistribution effect of tax and transfers. Generally speaking, the redistributive capacity of transfer payments is better than that of taxation, but is affected by the scale of investment, the way of spending, the project setting and the fund allocation; the tax policy, especially the personal income tax is the direct way to adjust income distribution gap, while its function is closely related to the tax structure, the tax management level, and the economic activities in a country. Thus, in order to achieve the fiscal target of fairness, the best way for a country to make use of the tax-transfer redistribution system is to combine and take advantage of the two methods based on its own economic conditions.According to the empirical study, the tax-transfer system in China has not effectively played its role in income redistribution. Firstly, because of the low average tax rate of personal income tax and the deficiency of property tax system, the direct tax has little effect on improving the income distribution pattern, while the indirect tax with the nature of weak regressive, worsens the present pattern of the distribution of income. Besides, for the insufficient expenditure level and unreasonable allocation, the transfer payment fails to effectively implement policy objectives.The key to achieve the policy objectives turns out to be effectively tapping the potentials of fiscal transfer payments, after learning the experience of tax-transfer system in adjusting income gap and reducing poverty from developed as well as other developing countries, which requires enhancing the level of expenditure, expanding coverage and improving the efficiency of payment. At the same time, the management of taxation should not only be building the tax progressivity, but also increasing the effective rate, to provide financial support for spending projectsTo conclude, the author puts forward the suggestions to optimize the policy of fiscal redistribution, in view of the current situation and economic conditions of the tax-transfer system in China. On the one hand, the redistribution ability of the tax system should be improved, which includes expanding and strengthening the regulation, controlling the progressivity of indirect tax and further creating tax capacity, in order to enhance the scale of projects. On the other hand, the function of poverty alleviation of transfer should be made full use of, in the weak links and regions of tax policy, improving the social security system in urban and rural areas, increasing the investment in agriculture and rural residents’support, and taking new payment methods to ameliorate the efficiency of funds using.