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Rural Informal Taxation in China: Historical Evolution and an Analytic Framework

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  • Justin Yifu Lin
  • Mingxing Liu

Abstract

The present paper examines the historical evolution of China's rural taxation system from the pre‐reform period to the late 1990s. We propose that because of information asymmetry between the upper‐level and the lower‐level governments, local governments had to be granted some informal tax autonomy to fulfill the upper‐level policy mandates. This easily led to excessive local informal taxation on farmers. As market liberalization of the grain sector progressed, the low‐cost tax instruments implemented through the traditional approach of implicit taxation gradually eroded. Local governments in agricultural regions had to resort to informal fees collected directly from individual rural households while the more industrialized regions shifted to non‐agricultural taxes that are less costly in terms of tax collection. Hence, political tension between farmers and local governments in agriculture‐based regions emerged and rural tax reform became necessary.

Suggested Citation

  • Justin Yifu Lin & Mingxing Liu, 2007. "Rural Informal Taxation in China: Historical Evolution and an Analytic Framework," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 15(3), pages 1-18, May.
  • Handle: RePEc:bla:chinae:v:15:y:2007:i:3:p:1-18
    DOI: 10.1111/j.1749-124X.2007.00065.x
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    References listed on IDEAS

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    1. Ahmad,Etisham & Stern,Nicholas, 1991. "The Theory and Practice of Tax Reform in Developing Countries," Cambridge Books, Cambridge University Press, number 9780521397421.
    2. Li, Hongbin & Zhou, Li-An, 2005. "Political turnover and economic performance: the incentive role of personnel control in China," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1743-1762, September.
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    Cited by:

    1. Wang, Xiaxin & Shen, Yan, 2014. "The effect of China's agricultural tax abolition on rural families' incomes and production," China Economic Review, Elsevier, vol. 29(C), pages 185-199.
    2. James Alm & Yongzheng Liu, 2013. "Did China's Tax-for-Fee Reform Improve Farmers' Welfare in Rural Areas?," Journal of Development Studies, Taylor & Francis Journals, vol. 49(4), pages 516-532, April.
    3. Lu, Jie, 2015. "Varieties of Governance in China: Migration and Institutional Change in Chinese Villages," OUP Catalogue, Oxford University Press, number 9780199378746.
    4. James Alm & Yongzheng Liu, 2014. "China's Tax-for-Fee Reform and Village Inequality," Oxford Development Studies, Taylor & Francis Journals, vol. 42(1), pages 38-64, March.
    5. Yongzheng Liu & Jorge Martinez-Vazquez & Baoyun Qiao, 2014. "Falling Short: Intergovernmental Transfers in China," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1423, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.

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