DECOMPOSITION OF SOCIAL INCOME ADJUSTMENT EFFECT OF CHINA’S PERSONAL INCOME TAX AND SELECTION AMONG DIFFERENT UNIFORM INCOME TAX MODES

Abstract

Based on 10342 Chinese family samples, by means of non-linear models, the effects of wage income tax (WIT), individual business income tax (IBIT) and other income tax (OIT) on the income gap in China are analyzed. It is found that China’s classified income tax is helpful to narrow the income gap. WIT plays a very important role in narrowing the income gap, with IBIT and OIT widening the income gap. Such income taxes, especially WIT, cause differences of the tax burden between taxpayers who have the same income amount. Uniform income tax is an indispensable measure to solve the problems. On the basis of the income tax systems of 13 countries, 16 different kinds of personal or household uniform income tax modes were built up. Namibia’s household uniform income tax mode is practical to China, because the income adjustment effect of such mode is stronger than that of China’s classified income tax, but the average tax rate of it is lower than that of China’s classified income tax.