Transformations  in
Business & Economics

EFFECT OF CORPORATE INCOME TAX ON REGULATING INCOME DISTRIBUTION BASED ON GENERAL EQUILIBRIUM
Baofeng Li, Wenjing Lyu, Tigui Chen

ABSTRACT: Corporate income tax is the most important direct tax in China and is key in regulating income distribution. However, the effect of corporate income tax on regulating income distribution remains unexplored based on general equilibrium. To explore the effects of corporate income tax on residents’ income distribution, a tax Computable General Equilibrium (CGE) model was constructed, and a Social Accounting Matrix (SAM) was compiled based on the four issues of China’s input-output table published in the past decade. The effect of corporate income tax on regulating residents’ income distribution was comprehensively measured and longitudinal compared from the perspective of income and consumption effects. Results show that: (1) For rural residents,the imposition of corporate income tax widens the income gap from the income effect, and narrows down the income gap from the consumption and overall effects; (2) For urban residents, the imposition of a corporate income tax narrows down the income gaps from both income and consumption effects; (3) For national residents, the imposition of corporate income tax widens the income gap from both income and overall effects, but narrows down the income gap from the consumption effect. Hence, corporate income tax is overall regressive with the degree of regression having a downward trend according to period. Conclusions herein provide reference significance in improving the effectiveness of corporate income tax on regulating income distribution from a policy perspective.

KEYWORDS:  income distribution, corporate income tax, computable general equilibrium (CGE) model.

JEL classification:  C68, D31, D63, H23, H25.