Research on Personal Income Tax Affecting Structure of Resident Consumption Expenditure in China

Delong Zhang

doi:10.4236/me.2017.82010

Abstract

The purpose of this thesis is to evaluate the impact of personal income tax on the structure of resident consumption expenditure. Food expenditure is of great importance in the consumption expenditure of residents, and it is directly related to the living standard and affluence of the residents, the author uses Engel’s coefficient to conduct the corresponding analysis. This thesis is the empirical analysis of the impact of progressive index of China’s personal income tax and average tax rate on food expenditure of the resident consumption expenditure. The results show that average tax rate is negatively correlated with Engel’s coefficient of the seven income group residents and the integral residents. Among them, the average tax rate has the greatest impact on the consumption expenditure structure of the residents with the lowest income group, while the progressive level has no significant impact on Engel’s coefficient of the seven income group residents and the integral residents. From the international horizontal comparison, too low of the average tax rate is the important factors for restricting China’s personal income tax from reducing Engel’s coefficient.

Highlights

The results show that average tax rate is negatively correlated with Engel’s coefficient of the seven income group residents and the integral residents
The average tax rate has the greatest impact on the consumption expenditure structure of the residents with the lowest income group, while the progressive level has no significant impact on Engel’s coefficient of the seven income group residents and the integral residents
Tax is positively related to average tax rate and progressive level

Summary

Introduction

The purpose of this thesis is to break down the two aspects of income redistributive effect of China’s personal tax, and is to evaluate the impact of these two factors on consumption expenditure of resident food. C is the index of the tax concentration rate, and its calculation method is similar to the algorithm of Gini coefficient It can be seen from this formula that personal tax redistributes the income through two aspects of average tax rate and progressiveness, namely, there’s positive correlation between redistribution effect and average tax rate and progressiveness. In order to make full use of income redistributive effect of personal tax, there’s great limitation by only increasing average tax rate or enhancing progressive level. Since prior to 2006, China levied only the agricultural tax of the agricultural production activities of rural residents, and since China abolished the agricultural tax in 2006, the tax law provides not to levy the personal tax for residents that are engaged in production and business activities that the agricultural tax is payable, so this thesis considers only the urban resident for the study of personal tax

Decomposition of Income Redistributive Effect of China’s Personal Income Tax

Findings

Conclusions and Policy Recommendations