Research On The Impact Of Tax Policy Changes On Resident Consumption

Over the past 40 years of reform and opening-up,China’s national economic development has made world-renowned achievements,and consumption has become the main driving force of China’s economic growth,while the ratio of final expenditure to GDP of residential consumption,one of the important components of national economic,has been at a low-level year by year.According to the data from the National Bureau of Statistics,the proportion of final consumption expenditure to GDP of China’s resident was 38.2%in 2021,which is not only much lower than developed countries such as the United States(67.2%)and the United Kingdom(60.9%),but also lower than Russia(50.9%),which has the same level of economic development as China,and even lower than India(60.8%)and other countries whose GDP per capita is lower than China.With the global financial crisis in 2008 and the intensification of trade friction between China and the United States in recent years,global demand is in a sharp downward trend and the support of external demand for China’s economic growth is gradually weakening.Coupled with the huge pressure on resources and the environment,China’s economy should focus on changing to a domestic demand-driven development pattern.However,the reality is that consumer demand falls behind economic growth,which has become an important factor limiting the sustainable and healthy development of China’s economy.The report of the 20th Party Congress in 2022 pointed out that "efforts should be made to expand domestic demand and enhance the fundamental role of consumption in economic development".To further expand domestic demand,we have to start from addressing the consumption ability and willingness of resident,which ultimately boils down to the core issue of how to increase the disposable income of resident,and to increase the disposable income of resident,on the one hand,we have to increase the labor or capital income of resident,on the other hand,we have to reduce the level of tax burden borne by resident.Increasing the labor or capital income of resident is from the perspective of endogenous growth and is closely related to the ongoing supply-side structural reform in China,while reducing the tax burden of resident needs to be considered through fiscal policy.The impact of different tax policies on resident income and consumption varies,and there is a long way to go to further adjust the tax structure through tax policy changes in order to achieve the goal of increasing resident consumption.In addition,with the development of heterogeneous consumer theory in recent years,academics have come to realize that even the same changes of tax policy may have different effects on the consumption behavior of heterogeneous consumers,which also provides a new perspective to explore tax policy changes.Therefore,within the framework of specific economic structure,social environment and traditional culture,it is worthwhile to analyze how to adjust the tax structure through changing tax policy,so that the tax structure in China can maintain a healthy development while taking into account the release of consumption potential of resident.This paper firstly elaborates the impact of taxation on resident consumption through theoretical analysis and model derivation.Based on the perspective of tax policy changes,we break the assumption of "homogeneous consumers" under the traditional theoretical framework and combine the theories of tax changes,liquidity constraints,precautionary savings and buffer stocks to investigate the impact of the same tax policy changes on behavior of heterogeneous consumers with different endowments and their underlying mechanisms.Second,based on frontier econometric methods and fully weighing data availability,we use micro-macro databases such as China Family Panel Studies(CFPS)and China Urban Statistical Yearbook to empirically test the specific effects and potential mechanism of policy changes of different taxes on resident consumption expenditure and consumption structure.In addition,the corresponding robustness tests,heterogeneity analysis,mechanism tests,and timeliness tests are conducted on the benchmark regression results,in order to explore the relationship between tax policy changes of different tax types and resident consumption in China is more depth,providing partial theoretical and empirical support for the relevant policy formulation of tax reform in China.The following conclusions are mainly obtained:First,in terms of the impact effects of policy changes in personal income tax among direct taxes,it is found that,firstly,personal income tax reform leads to an overall reduction in the real tax burden of resident households,changes the tax burden structure and increases disposable income,which in turn has a significant positive impact on resident household consumption expenditure.Secondly,heterogeneity analysis finds that personal income tax reform significantly boosts household consumption expenditures on food and eating out,clothing,and household goods and services,but not on other types of consumption expenditures.Thirdly,in terms of consumer heterogeneity,the personal income tax reform significantly boosts consumption expenditures of households with young and healthy heads,high average household education level,and living in urban areas compared to households with old and poor health heads,low average household education level,and living in rural areas.Finally,based on the asset structure perspective,residential households are divided into HtM-type households and non-HtM-type households,and it is found that consumption expenditure of both types of households can be significantly boosted by personal income tax reform,but non-HtM households receive a significantly higher boost to their consumption expenditure than HtM households.Second,in terms of the impact effect of the policy change in property tax policy among direct taxes,the study finds that,firstly,the pilot property tax reform policy has a significant negative impact on consumption expenditure of urban households.Secondly,since the specific reform policy details are different in Shanghai and Chongqing,the degree of squeezing out of urban households’ consumption expenditure differs,with Chongqing resident household consumption expenditure being more suppressed compared to Shanghai.The squeezing-out effect of the pilot property tax reform policy is also heterogeneous across urban households with different housing asset holdings.Specifically,the pilot property tax reform policy significantly reduces the consumption expenditure of households with one or only one home,but has no significant effect on the consumption expenditure of households without a home and households with multiple homes.Thirdly,the pilot property tax reform policy reduces urban households’ disposable income,increases precautionary savings,and reduces the value of home equity,thereby squeezing out their consumption expenditures.Finally,the suppression effect of the property tax reform pilot policy on urban households’ consumption expenditure in Shanghai and Chongqing is not a short-term stressful behavior of households,but is somewhat sustainable,but tends to weaken as time progresses.Third,in terms of the impact of policy changes in indirect taxation,the study finds that,firstly,from the quantitative dimension,the pilot policy of business tax to VAT has significantly promoted the growth of resident consumption level and realized the "expansion effect" on resident consumption.Secondly,from the qualitative dimension,the pilot policy of business tax to VAT has significantly promoted the upgrading of resident consumption structure and realized the "quality effect" of resident consumption.Thirdly,the mechanism analysis shows that the business tax to VAT pilot policy has promoted the "expansion and quality" of resident consumption from the supply side,specifically,on the one hand,through the price channel,which has significantly increased the level of resident consumption,and on the other hand,through the channel of promoting the upgrading of industrial structure,which has significantly promoted the structure of resident consumption.Finally,the business tax to VAT pilot policy will still significantly promote the growth of resident consumption level and the upgrading of resident consumption structure in the process of gradual extension,indicating that its "expansion effect" and "quality effect" on resident consumption can be realized nationwide and are sustainable.Based on the above theoretical and empirical analysis,the policy recommendations of this paper are:first,improve the personal income tax system and continue to deepen the personal income tax reform.Second,pay attention to identifying the residential and investment properties of housing,and scientifically determine the scope and basis of property tax.Third,strengthen the regulation of housing prices,regulate housing transactions and the rental market,and effectively exert the wealth effect of housing.Fourth,improve the level of government public service supply to alleviate the precautionary saving effect of taxation.Fifth,improve the consumer credit market to alleviate the liquidity constraints of resident.Sixth,moderately simplify the VAT rate to promote the growth of resident consumption.Seventh,optimize the industrial structure to support the upgrading of resident consumption structure.Eighth,increase public transfer payments to narrow the income gap between urban and rural areas.