In this research, we measured the level of taxation burdens relative to incomes for both
urban and rural households. We find that, in general, the taxes that Chinese urban
households pay are mainly indirect taxes such as value added, excise and consumption
taxes in addition to a small amount of direct taxation (personal income tax), while
taxation on rural households is in large part direct taxes on such as agricultural-related
taxes, local fees and educational charges, in addition to some indirect taxes from
commodity consumption. We find that although the income and consumption of rural
households are much less than those of their urban counterparts, rural households are
taxed more heavily than urban households relative to their respective incomes. By
calculating the total taxation burdens for different income groups for both urban and
rural households, we find that rural household taxation is much more regressive than
urban household taxation, mainly due to the highly regressive nature of rural direct
taxation. Stylized facts of rural direct taxation in China are presented with the finding
that rural direct taxation rates did not increase very fast in the 1990s. The main reason
that rural direct taxation became an acute problem in 1990s is the increase of rural
income disparity after the 1990s and the uneven tax and fee distribution among different
income groups. Low-income peasants pay much higher shares of direct taxes and fees as
percentages of their incomes, which is mainly due to the fact that poor people are usually
the group of people with the lowest proportion of income from non-agricultural sources,
thus they are more vulnerable to rural direct taxation. Policy implications are drawn
regarding the rearrangement of inter-governmental relationships, and more generally, the
establishment of a more reasonable rural public finance system in China.