Difusi´on Browniana

The current tax system has resulted in the concentration of wealth with a small number of people, a situation which is harmful to a healthy development of the national economy and social stability. There is the same urgent need to enhance the reform of taxation policies and establish a sound mechanism that embodies government policies. Current problems mainly exist around personal income taxes where taxation starts at a low level of income. Mid- and low-level earners pay a significant proportion of their income in tax, but the government has no efficient control over higher-income taxation. No sufficient adjustments are made on higher income earners, hence serious personal income tax evasion occurs. The existing tax system definitely worsens the inequality situation.

The priority for future income taxation reform will be to formulate a reasonable income tax lower cut-off line while intensifying taxation management for high-income groups. If China fails to find a resolution to the unfair income tax situation, the widening gap between the rich and the poor will definitely affect the peace and security in society.

CONCLUSION

This paper began with providing a detailed view of Chinese productivity developments during the transitional period of economic reform. Relying on official statistics, we calculated labour productivity for agricultural production and for industrial production conducted by enterprises of different ownerships. Our major findings are that these production units all showed increasing trends of labour productivity and that comparatively, the industrial sector has been much more productive than the agricultural sector. Within industrial sectors, the smaller has been the state-owned share, the higher has been labour productivity. Due to data limitations, we treated non-state-owned and non-collective owned industrial enterprises as a single group and were not able to determine whether specific enterprises in each category demonstrated growing productivity over time.

Next we examined poverty in China. Evidence from the World Bank, the National Bureau of Statistics and independent researchers all support the conclusion that China has made great achievements in reducing poverty. In order to see whether the decrease in poverty resulted from increasing productivity, we carried out regressions and our findings were somewhat surprising. In terms of total economy labour productivity, poverty seemed to be significantly affected, i.e. higher labour productivity would lead to a lower poverty rate. But if agricultural labour productivity and industrial labour productivity were used as explanatory variables instead of total labour

productivity, our results indicate that only higher industrial labour productivity is related to poverty reduction. Higher agricultural labour productivity might not make any significant contribution to reducing poverty, and may even make things worse due to terms of trade effects.

When we included the inequality variable into our regressions, the results were inconsistent with inequality having a significant influence on poverty. Certainly it needs to be pointed out that caution is called for due to the data and statistical weaknesses discussed, although the general result of productivity reducing poverty is supported in the literature.

In the last part of this paper, we discussed briefly the factors affecting future Chinese

productivity growth: technological innovation, further structural adjustment and human resource exploitation through education. In addition, good governance is essential to help to maintain a healthy and equitable society in the progress of economic growth.

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Appendix 1: Estimating Total Factor Productivity (TFP) for Chinese State-owned