The Redistributive Impact of Taxation in Rural China, 1995-2002: an Empirical Study Using the 1995-2002 CASS CHIP Surveys

This paper evaluates the redistributive impacts of rural taxation in China, using the CASS CHIP survey 1995-2002. The main findings can be summarized as follows.First, the major policy target of rural taxation reform--reducing the average rate of taxes and levies--was accomplished between 1995 and 2002, with favorable redistributive results. When the aggregate scene is observed, the disequalizing redistributive impact of taxation declined between 1995 and 2002. Second, despite these positive results from the aggregate perspective, the favorable impact of the reform was severely limited because overall rural taxation remained disequalizing after the reform and regressivity in taxation itself, measured by the Kakwani index and the income elasticity of taxation, increased between 1995 and 2002. The favorable change in the redistributive impact between these years did not occur as a result of a decrease in the degree of regressivity of the tax itself, but because the average rate of taxation and before-tax income inequality declined. Moreover, when the regional picture is observed, the overall redistributive impact of taxation worsened in several provinces following the reform.