Should the Exemption of Personal Income Tax Continue to Increase? ——An Analysis Based on Micro Computable General Equilibrium (CGE)

Abstract

Abstract:

In this paper, we apply Computable General Equilibrium Micro-Simulation Approach (CGE-MSA), in order to investigate the change of welfare and income distribution of working-class after the improvement of the exemption. The establishment of the model is based on flexible grouping the working-class, and with the help of CFPS2010 baseline survey data, we introduce micro data into the model successfully. Main conclusion from this study is that the progressive of exemption has decreased significantly under the current tax system, regardless of whether it is for the degree of welfare improvement or the ability of income distribution. If the revenue structure of working class will not have big change, the regulation effect of exemption will be limited. Moreover, the degree of welfare improvement will be lower with higher levels of economic development, and unified exemption may have negative impact on inequity in underdeveloped areas. Therefore, the personal income tax need to make fundamental changes in the tax system, and excessively concerned about raising the exemption amount is unnecessary.

Key words: tax exemption, Computable General Equilibrium (CGE), welfare improvement, income distribution

Wang Tao, Zhu Yuexu, Lu Yuanping. Should the Exemption of Personal Income Tax Continue to Increase? ——An Analysis Based on Micro Computable General Equilibrium (CGE)[J]. , 2015, 27(7): 76-86.

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