Income Inequality,Policy Bias and the Optimal Fiscal Redistributive Policy

This paper establishes a theoretic model for studying the relationship among income inequality,policy bias and the optimal fiscal redistribution.The model reveals that the policy bias is the decisive factor in vicious circle of both the fiscal redistribution and income equality.While policy is partial to the poor,the optimal option of fiscal redistribution is to raise taxes and to expand transfer payments;and while the policy is partial to the rich,the optimal option of that is to lower the tax rate and to reduce transfer payments.According to empirical research using the data of China,we find the conclusions as follows.Firstly,the income inequality is being worsened,and the effects of the fiscal redistribution policy designed against the aggravating inequality are weak,which are unable to reverse the trend of aggravating inequality.Secondly,tax policy of income redistribution is partial to the rich;the tax burden on the rich is relatively lighter than the poor,which worsens the income inequality.The transfer payment to the poor is usually consumption voucher,which counterbalances the effort of poverty relief.In the end,this paper puts forward several policies and suggestions.