ZHANG Ping;HOU Yilin
School of International Relations and Public Affairs, Fudan University;Maxwell School of Citizenship and Public Affairs, Syracuse University, the United States
While China considers adopting the property tax, there still lacks empirical support for tax system design and evidence on the socio-economic effects of the tax. This paper fills the gap in the Chinese literature. Based on the ability-to-pay theory, this paper builds a model for the ability-to-pay index of China’s property tax. By using data from China Household Finance Survey (CHFS), we estimate the differences of ability-to-pay index among several types of families in different provinces, and calculate the feasible differentiated effective tax rates. Under four exemption schemes (no exemption, the first house exemption, per capita area exemption, and per capita value exemption), assuming that property tax revenue is used for basic public services that equally benefit all families, we calculate the distribution of the tax burden for families of various income levels and investigate the redistribution effects. The results show considerable differences in the ability-to-pay index among families in different areas, thereby highlighting the local characteristics of the property tax. The results also identify the huge potential of the property tax on redistributing or adjusting income and wealth, with high income families bearing more than 50 percent of the tax burden under each exemption scheme. Among several exemption schemes, the “per capita value exemption” excels in vertical fairness, income redistribution, and tax revenue.
property tax;ability-to-pay;tax reduction and relief;tax burden;redistribution effect
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