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Inequality and the Urban–rural Divide in China: Effects of Regressive Taxation

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  • Xiaobing Wang
  • Jenifer Piesse

Abstract

Using three comparable national representative household surveys for China in 1988, 1995 and 2002, the present paper reveals the regressivity and urban bias of China's direct tax and welfare system in this period. It shows that a regressive taxation system and skewed allocation of subsidies increases the urban–rural income gap and enhances overall inequality. Modeling these relationships indicates that the relatively poorer rural population has a net tax liability, whereas those in the richer urban areas receive net subsidies. This pattern is common in China, although the extent of the bias varies. This skewed system of tax and welfare payments is a major cause of the persisting urban–rural income gap and contributes to the overall income inequality in China. The abolishment of the agriculture tax in 2006 has had a positive impact on rural people's livelihoods.

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  • Xiaobing Wang & Jenifer Piesse, 2010. "Inequality and the Urban–rural Divide in China: Effects of Regressive Taxation," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 18(6), pages 36-55, November.
  • Handle: RePEc:bla:chinae:v:18:y:2010:i:6:p:36-55
    DOI: 10.1111/j.1749-124X.2010.01219.x
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    References listed on IDEAS

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    Cited by:

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    3. Hongliang Wang & Yiwen Yu, 2016. "Increasing health inequality in China: An empirical study with ordinal data," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 14(1), pages 41-61, March.
    4. Nanak Kakwani & Xiaobing Wang & Jing Xu & Ximing Yue, 2021. "Assessing the Social Welfare Effects of Government Transfer Programs: Some International Comparisons☆," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 67(4), pages 1005-1028, December.
    5. Zhou Jiang & Maoxia Zeng & Mingming Shi, 2023. "E‐commerce and Consumption Inequality in China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 31(5), pages 61-86, September.
    6. Tang, Le & Sun, Shiyu, 2022. "Fiscal incentives, financial support for agriculture, and urban-rural inequality," International Review of Financial Analysis, Elsevier, vol. 80(C).
    7. Liu, Jingjing & Nijkamp, Peter & Lin, Derong, 2017. "Urban-rural imbalance and Tourism-Led Growth in China," Annals of Tourism Research, Elsevier, vol. 64(C), pages 24-36.
    8. Youlang Zhang & Hongshan Yang, 2023. "Bureaucratic politics, innovation compatibility, and the dynamic diffusion of subnational decentralization reforms in China," Review of Policy Research, Policy Studies Organization, vol. 40(4), pages 553-572, July.
    9. Baeten, Steef & Van Ourti, Tom & van Doorslaer, Eddy, 2013. "Rising inequalities in income and health in China: Who is left behind?," Journal of Health Economics, Elsevier, vol. 32(6), pages 1214-1229.
    10. Hongliang Wang & Yiwen Yu, 2016. "Increasing health inequality in China: An empirical study with ordinal data," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 14(1), pages 41-61, March.
    11. Peter Rangazas & Xiaobing Wang & Yuxiang Zou, 2022. "China's efficient urban bias," Pacific Economic Review, Wiley Blackwell, vol. 27(3), pages 223-253, August.
    12. Yangyang Shen & Shi Li & Xiaobing Wang, 2021. "Impacts of Two Tax Reforms on Inequality and Welfare in China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 29(3), pages 104-134, May.
    13. Changyong Yang & Jianyuan Huang & Jiahao Yu, 2023. "Inequalities in Resource Distribution and Healthcare Service Utilization of Long-Term Care in China," IJERPH, MDPI, vol. 20(4), pages 1-17, February.
    14. Peter Rangazas & Xiaobing Wang, 2019. "Internal Migration Restrictions And Labor Allocation In Developing Countries," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 64(02), pages 263-279, March.
    15. Sibabrata Das & Alex Mourmouras & Peter Rangazas, 2018. "Wage and Fertility Gaps in Dual Economies," Springer Texts in Business and Economics, in: Economic Growth and Development, edition 2, chapter 7, pages 191-227, Springer.
    16. Xiaobing Wang & Jenifer Piesse & Nick Weaver, 2013. "Mind the gaps: a political economy of the multiple dimensions of China's rural–urban divide," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 27(2), pages 52-67, November.
    17. Iris Claus & Les Oxley & Chen Wang & Guanghua Wan & Dan Yang, 2014. "Income Inequality In The People'S Republic Of China: Trends, Determinants, And Proposed Remedies," Journal of Economic Surveys, Wiley Blackwell, vol. 28(4), pages 686-708, September.
    18. Xiaobing Wang & Nick Weaver, 2013. "Surplus Labour and Urbanization in China," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 3(1), pages 84-97, June.
    19. Xiaobing Wang & Jenifer Piesse & Nick Weaver, 2011. "Mind the gaps: a political economy of the multiple dimensions of China’s rural–urban divide," Global Development Institute Working Paper Series 15211, GDI, The University of Manchester.

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