The Effect Of Indirect Tax On Income Distribution Of Urban Residents

Our tax reform in 1994, has established the tax structure based on indirect taxes. For 21 years, the tax structure mainly with indirect taxes has played a significant role in raising revenue, and the revenue growth rate is greater than the GDP growth rate. On the other hand, turnover tax such as VAT, consumption tax, sales tax is not conducive to the adjustment of income distribution. Although the income of different groups has been greatly improved, the income distribution gap is widening the Gini coefficient has exceeded the international warning line. To this end, deepening fiscal and tax reform, improving the tax system, reducing the proportion of indirect taxes in the tax structure demand immediate attention.This paper is divided into six chapters. In the first chapter, the background and meaning of topics, innovation and shortage and research methods are introduced. The second chapter is literature review, to summarize tax and non-tax factors affect the income of urban residents, which focuses on the method in measuring tax progressivity and the effect on income distribution, and the mechanism that the effect of indirect taxes on urban residents’income distribution. In the third chapter, using a variety of methods such as graph, tables and formulas, explain the principles of tax shift and tax incidence, and finally come to a conclusion that the degree of tax shift and elasticity of supply and demand of the commodity are related. For consumers, the lower the elasticity of demand for consumer goods, the higher tax burden consumers need to bear. In the fourth chapter, the paper uses the current data to reflect the phenomenon for the large proportion of indirect taxes, and elaborate the principle of diminishing marginal propensity to consume and the Engel coefficient. Then, briefly state the existing problems on current tax system design in VAT, consumption tax, sales tax. According to the analysis in Chapter III and Chapter IV, in theory, it can be inferred that indirect taxes is regressive and the reverse adjustment on income distribution. The fifth chapter is the empirical analysis, using the input-output model and data of 2007 and 2010 to simulate tax shift process, calculating the tax burden of urban residents about VAT, consumption tax, sales tax and the proportion of three kinds of taxes in disposable income. As well as comparing the change of this proportion and using of MT index to judge the changes in indirect taxes’ regressiveness. In the sixth chapter, I summarized empirical results and make suggestion on tax reform in the future.