The government in a centrally planned economy can raise investable resources through price and wage manipulation. By treating price and wage controls as an implicit form of labor income taxation. I have assessed the scale of resource transfers from households to the government in pre-reform China. From the observed rise of the labor income share in the non-agricultural sector output resulting from price and wage liberalization since 1979, the implicit tax revenue during the 1964-78 period is assessed as 10.1 % of GDP. According to estimates based on a two-sector model, this implicit labor income tax led to implied reduction of 33.1% and 36.7% respectively, in the price of agricultural goods and in the non-agricultural-sector nominal wage during the 15-year period. The equivalent average labor income tax rates were 18.2% and 21.1% for agricultural and non-agricultural sector workers of the time.
Imai, H. (1998). The labor income tax equivalent of price scissors in pre-reform China (CAPS Working Paper Series No.86). Retrieved from Lingnan University website: http://commons.ln.edu.hk/capswp/28
CAPS Working Paper Series No.86 (14/98)