Yang Canming
IIDPF & School of Public Finance and Taxation, ZUEL
The 10th meeting of the Central Finance Committee on 17 August 2021 emphasised that common prosperity is the essential requirement of socialism and that it should be promoted in the context of high-quality development. The Fifth Plenary Session of the 19th CPC Central Committee called for the "solid promotion of common prosperity" and explicitly proposed that by 2035 "the common prosperity of all people will have made more obvious and substantial progress" and "the middle-income group will have expanded significantly". After achieving the first 100-year goal of "a moderately prosperous society", China is now embarking on a new journey to build a modern socialist country and is moving towards the second 100-year goal of "common prosperity". China is on its way to the second hundred-year goal of "common prosperity". Compared to the first centenary goal, which emphasised "making the cake larger and faster", the second centenary goal of "distributing the cake fairly" is more important, complex and challenging. How can we successfully avoid the Sowell trap, where improvements in the structure of income distribution come at the cost of aggregate decline? What is the role of the existing distribution system in promoting shared prosperity? How can the existing income distribution system be further developed and improved? These are all questions that deserve to be explored in depth.
The three distribution systems under the socialist market economy system with Chinese characteristics include primary distribution, redistribution and third distribution. The primary distribution plays a fundamental role and is dominated by market forces, with an emphasis on competition and efficiency. Redistribution builds on the primary distribution and is led by government forces, which place greater emphasis on equity and seek to address inequalities in social development through taxation and the various public policies implemented by the government. The levels between primary distribution and redistribution are ordered and complementary in function. The third distribution refers mainly to philanthropy based on voluntary, loving and emotional ethics, and its role in regulating the distribution of income and wealth is increasingly appreciated. With the development of the economy and society, foundations, charities and other forms of social organisations have emerged and become an important force in promoting the role of the third distribution function. The construction of basic institutional arrangements for the coordination of primary, redistribution and third distribution is an important way to promote common prosperity.
In practice, in addition to the three distributions mentioned above, there is also a form of distribution that occurs within the family or clan in the reality of our inhabitants, such as the distribution of inheritance, the maintenance of elders by the younger generation, and gifts between relatives. This type of distribution, based on kinship ties and intergenerational transfers, is known as the 'fourth distribution'. The "fourth distribution" does not follow the rules of the market, nor is it an administrative order, nor is it a form of social charity. The "fourth distribution" has a solid theoretical and practical basis in economics.
The economic theoretical basis of the "fourth distribution". The "fourth distribution" is the distribution of income and wealth within the family, the family in the broad sense, not the household in the narrow sense, and its earliest economic theory can be traced back to Engels' Der Ursprung der Familie, des Privateigenthums und des Staats. Furthermore, based on economists Becker and Chiappori's work on household economics, the three economic concepts of altruism, public goods and collective decision-making constitute the underlying economic logic of the 'fourth distribution' (Chiappori, 1988; Becker, 1991; Bourguignon et al. 2009). Altruism makes it possible for individuals within the family or clan to be useful in ways that are not independent of each other, most obviously in the form of intergenerational transfers of wealth and mutual help between siblings. Certain types of household consumption have the attribute of being public goods, and a viable solution is to provide public goods for the household or family through collective decision-making mechanisms. When collective decisions are involved, due to differences in the preferences of members within households or within families, Arrow's impossibility theorem states that when member preferences are known, it is not possible to derive the order of group preferences from the order of individual preferences when the four social choice axioms are satisfied. This has led to collective decision-making within the family and the clan often depending on a central member, the most obvious feature being that the allocation of family resources depends to a large extent on the respected elders of the family.
The basis for the reality of the "fourth distribution". Throughout history, compared to Western countries, China's long-standing "family culture", "filial piety culture" and "clan culture", as well as the customs and norms they have developed, have played an important role in the process of economic and social development. The culture of family, filial piety and clan culture, as well as the customs and norms they formed, played an important role in the process of economic and social development. In terms of actual data, based on WISH2020, the average household redistribution income is about 437 CNY and the average household support expenditure is about 891 CNY, which shows that the scale of resource allocation within households is significantly higher than the scale of redistribution. From the perspective of existing policies, the special deductions in personal income tax such as support for the elderly and children's education, as well as the recently released Opinions on Strengthening Ageing Work in a New Era by the Central Committee of the Communist Party of China and the State Council, which mentions that support policies such as housing will be formulated to encourage adult children to live close to or with their elderly parents, all reflect the redistribution of the "fourth distribution The support of the "fourth distribution" and the linkage between the two. In terms of empirical research, a large number of studies have examined the behaviour of mutual aid between family households and its economic and social impact. For example, Guo et al. (2014) found that clan networks can reduce intra-village income disparities by facilitating labour mobility, and Liu and Hu (2017) found that elder care is divided into different tasks depending on the characteristics of each family member, which manifests as " having money to pay and having power to pay", among others.
In contrast to the social nature of the first three distributions, the "fourth distribution" has a kinship and familial character, which leads to the movement of wealth within families and households. The "fourth distribution" is therefore important for reducing the income distribution gap, especially within households and families. Certainly, while paying due attention to the "fourth distribution" to narrow the income gap within families and households, it is also important to prevent class consolidation through inheritance tax and gift tax, which are mutually supportive of the first three distributions.
In short, the first distribution represents the market, based on the competition mechanism, emphasising economic efficiency; the second distribution represents the government, using administrative means, emphasising social equity; the third distribution represents society, relying on charitable donations, emphasising social harmony; and the fourth distribution represents the family, highlighting the mutual assistance of family and friends, emphasising family happiness. In this sense, the concept of "fourth distribution" is conducive to a more complete income distribution system in China, forming a "four-in-one" income distribution system of market forces, government forces, social forces and family forces, and thus contributing to the accelerated achievement of common prosperity in the new journey of building a modern socialist country.