Urban and Rural Household Taxation in China. Measurement, Comparison and Policy Implications

Abstract

ABSTRACT By measuring the tax burdens for both Chinese urban and the rural households in the 1990s, we find that the taxes on the urban households were mainly indirect taxes through consumption of goods and services while those on rural households were largely direct taxes such as state agricultural taxes, local fees and tuition. Although the incomes of rural households were much lower than those of their urban counterparts, rural households were taxed much more heavily than their urban counterparts. By calculating the total tax burdens for different income groups of both urban and rural households, we find that rural tax in general was much more regressive. The main reasons for rural tax becoming more acute in the 1990s were the increasing rural income disparity and the uneven tax incidence biased against poorer households. Policy implications are drawn for the ongoing rural tax reform, the rearrangement of inter-governmental relationships as well as improving local governance in China.