CHINA'S PERSONAL INCOME TAX: HOWTO ADJUST THE INCOME DISTRIBUTION

The personal income tax contained a trade-off between efficiency and equity,whichwas consideredconventional wisdom in the public finance literature.But the tax evasion was ignored.Taking the tax evasion into the analysis,the adjustment mechanism of personal income tax was different under different conditions,where both efficiency and equity could be achieved.This paper analyzed the effect of the hidden income on adjustment mechanism of personal income tax,and concluded that there existed two adjustment mechanisms for personal income tax,one with high structural progressive and the other with low structural progressive.The regulation of income distribution could be achieved throughpersonal income tax with low structural progressive other than high structural progressive in China.