Does taxation have real effects on agricultural output? Theory and empirical evidence from China

Chunping Zhong, Calum Turvey, Juan Zhang and Changsheng Xu

Journal of Economic Policy Reform, 2011, vol. 14, issue 3, 227-242

Abstract: China has a long history of taxing agriculture, with special levies on output. Whether farm households are taxed on a lump-sum basis or as a proportion of output is an important issue. This paper develops a theoretical model to understand better the effects of the lump-sum and proportional taxation on agricultural output. It then empirically investigates the predictions using tax and output data on Chinese agriculture. The theoretical model predicts that lump-sum taxation affects only consumption, while proportional taxation simultaneously affects consumption, capital inputs and final output. Although the main tax policy targeted output, our results suggest that taxation had only a modest impact on output since it was effectively applied as lump sum taxation brought about by localized levies and taxes.

Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:taf:jecprf:v:14:y:2011:i:3:p:227-242

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DOI: 10.1080/17487870.2011.575105

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