Effects Research Of Individual Income Tax’s Role In Regulating Income Gap Between Interprovincial Urban Residents In China

An important duty of the government is to promote social equity and stability, which however can be hampered by plenty of factors. Income distribution is one of them. In recent years, though China has achieved rapid economical development, it has been challenged by a widening income gap between urban and rural areas, among different industries and different provinces. In the long-term, income gap will certainly disrupt social harmony and stability. Therefore, it is urgent for government to narrow down income gap and promote fair distribution of social wealth. Substantial regulating measures can be applied to narrow the income gap, while individual income tax has been considered as one the best measures thanks to its progressive tax rate. This paper, which aims to explore individual income tax’s effects on adjusting income distribution, find out existing problems and then put forward solutions to current difficulties, is very practical and valuable for’ future studies.This paper hence studies individual income tax’s impacts on regulating income gap between interprovincial urban and rural residents by utilizing Gini coefficient and applying empirical analysis. Research results show that, from a lateral view, personal income tax only manages to reduce limited income gap between interprovincial urban and rural residents. From the vertical perspective, individual income tax fails to significantly raise the income ranking of both urban and rural residents, namely it only imposes a limited influence on income mobility. The above results suggest that individual income tax has its limitations in that it cannot fully exert its theoretical role in regulating income. So, what are those limitations? This paper attempts to analyze individual income’s proportion in fiscal revenue, the tax design and collection mode of individual income, so as to find limitations and put forward some resolutions.