The Relationship Between Chinas Tax System and Economic Inequality

Along with Chinas sustained rapid economic growth, the nation confronts persistent structural challenges manifested in widening income inequality and deepening regional developmental imbalances. This study conducts an examination of how Chinas fiscal architecture contributes to these economic disparities by analyzing the current tax structure and the tax-sharing system. The analysis first argues that the regressive nature of Chinas tax system perpetuates wealth concentration. Systemic deficiencies in direct taxation, particularly the delayed implementation of property tax reforms, significantly undermine fiscal redistribution effectiveness. This article then investigates that, after the reform of the tax-sharing system, local governments are facing serious mismatch between the administrative responsibility and fiscal capacity. The imbalance has further compelled local governments to increasingly rely on land finance and debt instruments, which exacerbated regional disparities in financial capacity. The article highlights three policy responses. It further evaluates the realization path and fundamental requirements of the rural revitalization strategy, the resistance faced by the property tax reform, and the deficiency of endogenous incentives and debt inflation that fiscal transfer payments bring.