Calculating the Impact of Special Expense Deduction on Income Distribution
- LIU Rong, KOU Xuan
- Southwestern University of Finance and Economics, 611130.
The new individual income tax law which provides special expense deduction was fully implemented on January 1, 2019. The introduction of the special expense deduction is an important milestone in the history of China's tax reform, which will have a profound impact on China's income distribution, tax structure and economy. This paper uses the data of Chinese General Social Survey (CGSS 2015) to estimate the difference of individual income tax paid by households before and after the deduction. On this basis, Gini coefficient and the Pareto-optimal standard are used to measure and evaluate the effect of special expense deduction on the redistribution of household labor income. The study finds that although the special additional deduction weakens the redistribution effect of individual income tax, the overall welfare of the society is improved, and the income distribution is closer to the Pareto optimal.
- Individual Income Tax, Special Expense Deduction, Redistribution Effect