China's Tax-for-Fee Reform and Village Inequality

In the late 1990s, China enacted a rural tax reform known as the "Tax-for-Fee Reform" (TFR), largely driven by a desire to address farmers' complaints about their perception of a heavy and regressive tax burden. This paper examines the impact of the TFR on inequality in rural villages in China. Our results suggest an effective role of the TFR in reducing inequality within villages. Its impact on a consumption-based measure of inequality took effect immediately; its impact on per capita household income inequality took somewhat longer. Our results also suggest that it is "rich" and/or "coastal" villages that exhibited a significant reduction of inequality from the TFR, while "poor" and/or "inland" villages experienced no significant changes in inequality from the reform.