Asymptotic Marginal Tax Rate of Individual Income Tax in China

Zhenya Liu, Wu Yang and David Dickinson

Economic and Political Studies, 2014, vol. 2, issue 2, 121-138

Abstract: This paper examines the asymptotic marginal rate of individual income tax which maximizes China’s social welfare through numerical simulation based on the elasticity of China’s labor supply, income distribution and the social objectives of redistribution in accordance with the optimal direct taxation theory. Taking advantage of the optimal direct taxation model with consideration of the income effect, it comes to the conclusion that combined with China’s reality, the asymptotic marginal rate of individual labor income tax in China should be between 35% and 40%.

Date: 2014
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DOI: 10.1080/20954816.2014.11673847

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