Coal Taxation Reform in China and its Distributional Effect on Residential Consumers

There is an ongoing reform in coal taxation in China, from a quantity-based to a pricebased​ approach. While the coal tax could play an important role in resource conservation and air pollution reduction, its distributional effect is not well studied. This paper investigates the distributional effect of China’s coal taxes on households before and after the reform. We find that both the quantity-based and price-based coal taxes are regressive for residential consumers in China, that rural poor households are most affected, and that the coal taxation reform slightly reduced the regressivity of the coal tax. By simulation, we also find that the regressivity of the coal tax can be further improved if the tax rate scheme is set appropriately.