Home > China, Microeconomics, Tax Policy > Will a Luxury Tax Help China’s Poor?

Will a Luxury Tax Help China’s Poor?

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There are plenty of good things to point out about the tax reforms announced by China’s cabinet, but I’d like my students to consider these questions:

  • What is the likely effect of the decision to levy “a number of luxury taxes”?
  • What substitutes do China’s richest consumers have for the kinds of things the government can levy luxury taxes on?
  • Why are initial tax revenues from these taxes likely to mislead officials into thinking they will be as effective in raising future revenue?
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  1. Jeffrey Laryea
    February 12, 2013 at 10:44 am

    If the entire purpose of this is to generate revenue, then I think it’s an epic fail. I think luxuries are some of the most elastic “commodities” in the world and as such taxing them would just decrease its demand. However, I think this would be useful in the sense that it minimizes non-essential, extravagant spending and can possibly free up more money for investments and expansion. Then again the richest people could easily relocate and the country could end up losing a chunk of wealth through that.

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