Income inequality in China and the role of fiscal policies: An empirical study of Chinese provincial data

Fan Zhang; Juann H. Hung

doi:10.1007/978-981-13-0983-0_7

Income inequality in China and the role of fiscal policies: An empirical study of Chinese provincial data

Fan Zhang, Juann H. Hung^*

^*Corresponding author for this work

Department of Economics

Xi'an Jiaotong-Liverpool University

Research output: Chapter in Book or Report/Conference proceeding › Chapter › peer-review

Abstract

This chapter conducts panel regressions using provincial data from 2005 to 2010 to investigate whether China’s fiscal system is effective in mitigating the rise in income inequality in those years. On the revenue side, we find that only operation tax has a significant negative effect on income inequality. Value-added tax (VAT), individual and enterprise income tax all have an insignificant impact on income inequality. We suspect the insignificant effect of progressive individual income tax on income inequality reflects tax evasion by the rich. On the spending side, the results indicate that all government expenditures have no significant impacts on reducing income inequality. This suggests that, among other possibilities, government spending lacks efficiency or pays insufficient attention to the needy.

Original language	English
Title of host publication	The State of China's State Capitalism
Subtitle of host publication	Evidence of Its Successes and Pitfalls
Publisher	Palgrave Macmillan
Pages	165-196
Number of pages	32
ISBN (Electronic)	9789811309830
ISBN (Print)	9789811309823
DOIs	https://doi.org/10.1007/978-981-13-0983-0_7
Publication status	Published - 1 Jan 2018

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N2 - This chapter conducts panel regressions using provincial data from 2005 to 2010 to investigate whether China’s fiscal system is effective in mitigating the rise in income inequality in those years. On the revenue side, we find that only operation tax has a significant negative effect on income inequality. Value-added tax (VAT), individual and enterprise income tax all have an insignificant impact on income inequality. We suspect the insignificant effect of progressive individual income tax on income inequality reflects tax evasion by the rich. On the spending side, the results indicate that all government expenditures have no significant impacts on reducing income inequality. This suggests that, among other possibilities, government spending lacks efficiency or pays insufficient attention to the needy.

AB - This chapter conducts panel regressions using provincial data from 2005 to 2010 to investigate whether China’s fiscal system is effective in mitigating the rise in income inequality in those years. On the revenue side, we find that only operation tax has a significant negative effect on income inequality. Value-added tax (VAT), individual and enterprise income tax all have an insignificant impact on income inequality. We suspect the insignificant effect of progressive individual income tax on income inequality reflects tax evasion by the rich. On the spending side, the results indicate that all government expenditures have no significant impacts on reducing income inequality. This suggests that, among other possibilities, government spending lacks efficiency or pays insufficient attention to the needy.

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ER -

Income inequality in China and the role of fiscal policies: An empirical study of Chinese provincial data

Abstract

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