How Redistributive Is Fiscal Policy in China？

Fiscal Policy Effectiveness - China's fiscal policy effectively reduces inequality by approximately 10.3 Gini points, positioning it around the median of upper-middle-income countries in terms of redistribution achieved[15] - The analysis covers 63% of total revenues and 43% of total government spending, focusing on personal income tax, social insurance contributions, VAT, consumption tax, cash transfers, pensions, and education and health spending[14] Revenue and Expenditure Insights - Total fiscal revenue in China was 26,197 billion RMB (approximately 3,950 billion USD) in 2018, accounting for 29.1% of GDP[18] - Tax revenues constitute nearly 60% of total revenue, with VAT being the largest source, contributing 50% of total tax revenue[26] - Total public expenditure reached 22,090 billion RMB (24.5% of GDP), with social expenditure making up 36.9% of total expenditure[30] Social Spending and Inequality - China's spending on direct transfers is only 0.5% of GDP, the lowest among upper-middle-income countries, indicating a need for increased direct support to reduce inequality[33] - Education and health spending are the primary drivers of inequality reduction, but high user fees may limit access to essential services for low-income families[16] Recommendations for Improvement - The fiscal system could enhance its progressivity by increasing personal income tax rates and cash-based social benefits, thereby providing more support to those in need[16] - There is significant room for improvement in the overall redistributive capacity of the fiscal system, particularly through more effective use of progressive taxation[15]