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The effects of China’ s VAT enlargement reform on the income redistribution of urban households

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  • Li Du

    (Fudan University)

Abstract

Background China’s former goods and service tax (GST) system subjects sale of goods to VAT and provision of services to business tax. The VAT enlargement reform launched in 2012 aimed to replace the business tax with VAT step by step. This paper is intended to explore the redistribution effects of this reform. Methods On basis of input-output model and statutory tax rates, this paper derives the measurement of full GST burden of households in China where both VAT and business tax are imposed. Using the 2012 urban household survey data, the redistribution effects of the VAT enlargement reform is estimated by comparing the Gini coefficient and general entropy indexes before and after the reform. Results The VAT enlargement reform has improved the redistribution effects of China’s GST system mainly through lowering the average tax burden and reducing the inequality within the lowest-income group, though the inequality among different income groups was not reduced considerably. Conclusions Compared with overall rate reduction, greater relief to necessity items could improve the redistribution effects of the future VAT system more effectively.

Suggested Citation

  • Li Du, 2015. "The effects of China’ s VAT enlargement reform on the income redistribution of urban households," China Finance and Economic Review, Springer, vol. 3(1), pages 1-15, December.
    • Handle: RePEc:spr:chfecr:v:3:y:2015:i:1:d:10.1186_s40589-015-0024-5
    DOI: 10.1186/s40589-015-0024-5
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    References listed on IDEAS

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    1. Rosanna Scutella, 1999. "The Final Incidence of Australian Indirect Taxes," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 32(4), pages 349-368, December.
    2. Masayuki Tamaoka, 1994. "The regressivity of a value added tax: tax credit method and subtraction method — a Japanese case," Fiscal Studies, Institute for Fiscal Studies, vol. 15(2), pages 57-73, May.
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    Cited by:

    1. Vanesa Jorda & Jose M. Alonso, 2020. "What works to mitigate and reduce relative (and absolute) inequality?: A systematic review," WIDER Working Paper Series wp-2020-152, World Institute for Development Economic Research (UNU-WIDER).

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