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Vertical Fiscal Asymmetry and Income Inequality ——The Threshold Effect of the Financial Transfer Payment Dependence
Author(s): 
Pages: 40-54
Year: Issue:  6
Journal: Finance & Trade Economics

Keyword:  Vertical Fiscal AsymmetryTransfer PaymentIncome InequalityPanel Threshold;
Abstract: The inequality of income distribution is one of the major social contradictions in China at this stage. This paper empirically examines the impact of the intergovernmental vertical financial distribution system on the income gap since the tax sharing reform. The result is as follows: The increase of vertical fiscal asymmetry fails to narrow the income distribution gap on the whole. When the degree of transfer payment dependence is low, the increase of vertical fiscal asymmetry will reduce the income inequality of residents; but when the degree of transfer payment dependence exceeds a certain threshold, the increase of vertical fiscal asymmetry will aggravate the imbalance of residents in income distribution. Under the threshold effect of general transfer payment, the increase of vertical fiscal asymmetry will reduce income inequality; under the threshold effect of special transfer payment, the impact of vertical fiscal asymmetry on income inequality presents a "U-shaped" relationship. This means that in the reform of intergovernmental fiscal allocation relations, we should control transfer payment on a certain scale and raise the proportion of general transfer payment in the future.
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