Analyzing the distributional effects of fuel taxation in China |
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Authors: | Zhujun Jiang Xiaoling Ouyang |
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Affiliation: | 1.Institute of Finance and Economics Research, School of Urban and Regional Science,Shanghai University of Finance and Economics,Shanghai,China;2.Department of Economics, School of Economics, Faculty of Economics and Management,East China Normal University,Shanghai,China |
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Abstract: | As an effective policy instrument to reduce energy consumption and CO2 emissions, the effects of fuel taxation on income distribution have been the critical factor that determines whether a fuel tax could be acceptable in China. This paper estimates the distributional effects of a fuel tax on households in various income groups by using the input-output model. Results indicate that the total distributional effects of fuel taxes are moderately progressive; that is, high-income households would bear more tax burden compared to low-income households. In addition, the indirect effects are larger than the direct effects. Moreover, the Kakwani and Suits indices show that fuel excise taxes are progressive, implying that a fuel tax could improve the unfair income distribution. In order to reduce the negative impact of fuel taxes on low-income households, it is necessary for the government to design a reasonable redistribution mechanism of tax revenue or adopt compensatory measures such as the transfer payments targeted on low-income groups. |
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