Research on the Effect of Personal Income Tax Adjustment on Income Distribution Based on General Equilibrium

Abstract

Personal income tax is the most important tax type to regulate the distribution of residents' income in China, but how the redistributive effect of personal income tax is, the existing literature lacks an in-depth analysis based on general equilibrium. To study the impact of personal income tax on resident income distribution, this article constructs a Computable General Equilibrium (CGE) model of taxation and compiles Social Accounting Matrices (SAM) based on the four issues of China’s Input-output Table published in the past decade, and comprehensively measures and vertically compares the effect of personal income tax on resident income distribution from income effect and consumption effect. Research has found that: (1) levying personal income tax has narrowed the income gap among urban, rural, and national residents, indicating a progressive nature of taxation. Chinese Personal income tax taxpayers are mainly concentrated in high-income groups, which is the main reason for the progressive nature of Personal income tax. (2) Across time, the redistributive effect of the personal income tax increased period by period before the 2018 tax reform, and then weakened after the tax change. Finally, this article proposes policy recommendations to improve the personal income tax system and enhance the redistribution effect. The research conclusion provides reference significance for further reforming China’s tax system and improving the income distribution pattern. JEL Codes C68, D31. D63, H23, H25