Tax on Landowners and Tenants Rebel : The Impact of Property Tax on Social Conflicts in China

Abstract: This paper studies the change from lump-sum tax to property tax, which serves as a combat to inequality by shifting tax incidence from farmers to landowners, on farmers rebel and social conflicts. Using panel data from 575 counties over 262 years in China, we show that this progressive tax reform exacerbates social unrest in counties that have more arable land. We find that: first, the tax reform increases food price with incidence levied on consumers; second, conflicts only increase in wheat-planting (less labor intensive) regions while rice regions have no effects, indicating that the inelastic labor supply exacerbates tax burden on landless farmers and leads to social unrests; third, we find that the reform leads to slower economic growth proxied by population; last, the elimination of lump-sum tax reduces monitoring activities on residence restrictions and indirectly encourages business activities and secret associations. Our paper highlights the unintended consequences of tax reform that aims at combating inequality on social conflicts