The Impact Of Individual Income Tax On Residents’ Consumption

In the period of economic transformation and development,consumption has become the most important driving force for China’s economic growth.Resident income is the most important factor affecting consumption.In the case of weak consumption growth,personal income tax will be the key to promoting consumption growth.The impact of personal income tax on consumption is mainly realized through income effect and substitution effect,which affect labor supply and savings,and then affect residents’ disposable income.Therefore,increasing residents’ disposable income through tax reduction policy will be one of the most effective measures to boost consumption,and due to the existence of diminishing marginal propensity to consume,tax reduction for low-income people has a more significant stimulating effect on consumption.The current personal income tax system follows the general framework of tax reform in 1994 and has many problems.It can no longer meet the needs of the current social and economic development.Especially,the excessive personal tax burden has seriously restrained the consumption of residents,which is contrary to the current policy goal of expanding domestic demand in China.Based on the data of China Family Panel Studies(CFPS)of Peking University from 2012 to 2016,this paper uses the fixed effect model(FEM)to study the impact of personal income tax changes on household consumption,and discusses the direction of future tax reform.Firstly,we use descriptive statistical analysis to analyze the changes of household consumption,individual taxes and household income in 2010-2016.We find that after the tax reform in 2011,the amount of household tax will decrease significantly,but after 2014,the amount of household tax will increase with the increase of income.Secondly,this paper studies the impact of tax changes on the consumption behavior of residents in different tax items(wage income and individual operating income).It finds that the change of individual operating income tax has a significant negative impact on consumption.For every 100 yuan reduction of individual taxes,consumption expenditure will increase by 16.7 yuan,while the change of wage income tax has no significant on consumption.The paper also studies the different responses of different consumption types to individual tax changes,and finds that only clothing and transportation expenditure have a significant response to the change of payroll tax,but marginal propensity to consume is small,while food,dress,housing transportation and communication expenditure have a greater response to individual operating income tax.On this basis,this paper studies the differences of household responses to tax changes in eastern,central and Western regions,urban and rural households and families with different characteristics by means of sample segmentation.From the regional point of view,the change of individual operating income tax has the most significant impact on the consumption of residents in the western region;and the change of individual operating income tax has a greater impact on the consumption of urban residents than that of rural residents;from the perspective of families,the impact of individual tax changes on the consumption of different families will be different because of the age,education level,health status of family members,this paper argues that liquidity constraints,Preventive Savings and Short-sighted behavior is the important reasons for the difference.