A Study of the Impact of Indirect Taxes on Income Distribution in Rural and Urban China

We estimate the households' indirect tax incidences in rural and urban China by using microeconomic data. We find that the average ratio of tax to income is 10.6 per cent across the sample. The tax burdens are regressive in rural and urban areas. On average, the rural households' ratios of tax on income are lower than that of urban households. However, the poor pay more tax proportionally than the rich. The total inequality is marginally deteriorated by the indirect tax. The indirect taxes increase the inequality within rural and urban areas and decrease the inequality between rural and urban areas