This papers places the problem of Chinese rural taxation in the context of government regulation and tries to present an integrated theoretical framework of rural development in China in the past two decades. Our theoretical framework can reconcile the stylized facts that the average level of rural taxation relative to rural net income after the 1990s did not increase very fast, but rural taxation became a very serious problem in this period. We found that this is in large part due to the increase of rural income disparity after 1990s and the uneven tax and fee distribution among different income groups. We argue that differentiated enforcement of the government regulations such as grain procurement and birth control play an important role in the rural taxation problem, and more generally, the problem of expanding local government size and rising rural income disparity. The empirical findings do support our hypothesis.