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Welfare Effects of Regressive Taxation and Subsidies in China

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  • Xiaobing Wang
  • Jenifer Piesse

Abstract

Using three comparable national representative household surveys for China in 1988, 1995 and 2002, this paper provides micro level evidence of a policy of absolute regressive taxation and an inverted welfare system. It reviews the economic effects of taxes and subsides and shows that a dual and regressive taxation system increases the urban rural income gap and enhances overall inequality. The empirical evidence indicates that the relatively poorer rural population pay net tax while those in the richer urban areas receive net subsidies. This biased system of taxes and welfare payments is one of the major causes of the persisting urban-rural income gap and is largely responsible for overall income inequality in China.

Suggested Citation

  • Xiaobing Wang & Jenifer Piesse, 2009. "Welfare Effects of Regressive Taxation and Subsidies in China," Global Development Institute Working Paper Series 10809, GDI, The University of Manchester.
    • Handle: RePEc:bwp:bwppap:10809
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    File URL: http://hummedia.manchester.ac.uk/institutes/gdi/publications/workingpapers/bwpi/bwpi-wp-10809.pdf
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    References listed on IDEAS

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    7. Shorrocks, Anthony F, 1984. "Inequality Decomposition by Population Subgroups," Econometrica, Econometric Society, vol. 52(6), pages 1369-1385, November.
    8. Salanié, Bernard, 2011. "The Economics of Taxation," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262016346, April.
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    Cited by:

    1. Markussen, Thomas, 2011. "Democracy, redistributive taxation and the private provision of public goods," European Journal of Political Economy, Elsevier, vol. 27(1), pages 201-213, March.

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