Does Indirect Tax Increase the Income Gap between Urban and Rural Areas? &amp;lt;br/&amp;gt;—Based on the Analysis of Thayer Index

Rong Fu

doi:10.4236/jss.2016.41021

Abstract

In the process of economic and social development, serious income gap exists between urban and rural areas in our country, indirect tax—as our main taxes should play income distribution function to narrow the income gap between urban and rural areas. By using the consumption expenditure data of urban residents, the indirect tax burden of urban residents is estimated. The indirect tax burden of rural residents will be estimated by using the indirect tax data and the rural population. Compared with their respective income levels, we can draw the conclusion that the indirect tax is regressive between urban and rural residents. Using Tal index between 1994 and 2013 to measure urban and rural residents income gap, the empirical analysis of commodity tax shows that value added tax has a negative effect on income gap between urban and rural areas; business tax and consumption tax has a positive effect on income gap between urban and rural areas. However, negative effects brought by the VAT tax are greater than the business tax and consumption tax, indirect tax whose main body is VAT is worsening income distribution as a whole. The reform program to replace the business tax with a value-added tax will be expanded so that the proportion of value added tax will further increase. Combined with the empirical results, we put forward the policy which can perfect the indirect tax’s influence on income gap between urban and rural areas.

Highlights

Liu Yi and Nie Haifeng [5] use urban household survey data to prove that the the burden of VAT and consumption tax of low-income families is higher than high income families, the burden of business tax is higher than the low income families, Three tax on the whole has a strong regressive nature and prove that the indirect tax increases the income distribution gap
In order to study the effect of the value added tax, business tax, consumption tax on the income gap between urban and rural areas in China, we use Eviews software to analyze the effect of indirect tax on the income gap between urban and rural areas
Tell index after the establishment of the regression equation, in order to understand the impact of commodity tax on the Tell index, and build a regression equation six: LNT =α + β1 ∗ LNX1 + β2 ∗ LNX 2 + β3 ∗ LNX3 + ε

Summary

Introduction

(2016) Does Indirect Tax Increase the Income Gap between Urban and Rural Areas? R. Fu development, the income gap between urban and rural areas is the main form of income distribution gap in China. The continued expansion of the income gap between urban and rural areas will prevent the further growth of our economy and the sustainable development of the economy. Since the system of tax distribution, China’s tax revenue continues to grow, but direct tax which is mainly composed of personal income tax is far less than indirect tax whose main part is the commodity tax. It has practical significance to adjust the income distribution gap with the indirect tax as far as possible without affecting the financial revenue. The whole outline of the manuscript is the combination of theory and practice analysis

Literature Review

The Impact of Indirect Taxes on the Income Gap between Urban and Rural Areas

Conclusion

Findings

The Conclusions and Policy Recommendations