Regional Income, Labor Income Tax and Human Capital Accumulation -Based on the test of panel data model with variable coefficient

Abstract

The supply of human capital depends on income level and the labor income tax. This paper evaluates the provinces' average effective labor income tax rate and the level of human capital in China applying the international commonly used assessment methods. Then analyses the Influence of regional revenue level and the effective labor income tax rate on human capital and its inner logic using provincial panel data model with variable coefficient in the years 2008-2012. And further analyses the relationship differences of regional revenue, effective labor income tax rate and the human capital among provinces in China. The study finds that regional revenue level and human capital accumulation are positively correlated. The income effect is greater than the substitution effect for taxation on labor income in China's current taxation systems. But the impact is different among regions. Human capital is significantly and positively correlated to the effective labor income tax rate, but the positive correlation to the regional per capita income is not significant in the Eastern China. Human capital accumulation, regional per capita income and effective labor income tax rate are significantly and positively correlated in the Central and Western China. Finally this paper explains the empirical results and puts forward some measures to improve the human capital accumulation.