Welfare Effects of Regressive Taxation and Subsidies in China

Posted: 18 Apr 2010

See all articles by Xiaobing Wang

Xiaobing Wang

The University of Manchester - Economics - School of Social Sciences and Centre for Chinese Studies

Jenifer Piesse

University of Stellbosch; King's College London - Department of Management

Date Written: April 16, 2010

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.

Keywords: regressive tax, subsidy, income inequality, China

Suggested Citation

Wang, Xiaobing and Piesse, Jenifer, Welfare Effects of Regressive Taxation and Subsidies in China (April 16, 2010). Available at SSRN: https://ssrn.com/abstract=1590878

Xiaobing Wang (Contact Author)

The University of Manchester - Economics - School of Social Sciences and Centre for Chinese Studies ( email )

Arthur Lewis Building
Oxford Road
Manchester, M13 9PL
United Kingdom

Jenifer Piesse

University of Stellbosch

Stellenbosch, Western Cape
South Africa

King's College London - Department of Management ( email )

Virginia Woolf Building
22 Kingsway
London, England WC2B 6NR
United Kingdom

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