Tax Policy Effect And Analysis Of China's Economic Fluctuation

Tax policy is one of the important tools of fiscal policy.Reducing tax can stimulate the total demand by promoting consumption and investment,thus achieving the policy goal of stimulating economic growth.Although China's economic development has achieved outstanding results,it has encountered challenges in the process of development.How should the Chinese government implement policies to maintain sustained economic growth while reducing economic fluctuations? How does the economic variable cause economic fluctuations? Research and analysis of these issues will help the economy to grow more steadily.The Dynamic Stochastic General Equilibrium(DSGE)model is the mainstream model of macroeconomics research.It can be used for theoretical analysis and empirical analysis to more clearly describe the effects of China's tax policy and economic operation characteristics and influencing factors.First,this paper constructs a three-sector DSGE model that includes household,manufacturer,and government,and sets the family sector in a distorted tax environment,while introducing consumption habit preferences,imperfect competition environments,and government consumption.A model equalization system is obtained by solving the optimization conditions of each department.The model considers consumer preference shock,wage bonuses shock,three tax rate shocks(consumption tax,labor income tax,capital income tax),technology shocks,government spending shocks,and monetary policy shocks.Secondly,this paper selects 7 observation variables of output,private consumption,investment,government expenditure,inflation,money demand and wages,and uses the quarterly data from China's fourth quarter of 2001 to the fourth quarter of 2017 as observation data.The calibration method and Bayesian estimation method are used for parameter estimation.Finally,the paper analyzes the impulse response and variance decomposition of macroeconomic variables.The main findings are as follows: First,the impact of positive government spending shock makes output increase,inflation rise in the short term,and investment and consumption decline,resulting in “crowding effect”.Second,the impact of the consumption tax rate shock will increase output,inflation and consumption,and reduce investment;third,the labor income tax rate shock has a negative effect on variables other than currency balances and wages,and the increase in labor income tax does not conducive to economic growth;Fourth,the positive capital income tax rate shock has caused a negative deviation between output and public consumption,interest rates,investment,labor,and inflation.Fifth,the impact of monetary policy shock makes the inflation have a positive deviation from steady state.while at the same time output,investment and consumption have a negative deviation from steady state,which is called "stagflation".The results of variance decomposition show that the source of inflation volatility is mainly monetary policy shocks,technical shocks.Labor income tax rate shock explains most of the output,investment,interest rate fluctuations,while the impact of capital income tax and consumption tax tax rate impact is minimal.Therefore,this paper suggests that the government should encourage technological innovation,and should use monetary policy cautiously,and adopt a policy-funding approach;rationally reduce taxes on capital and labor,and appropriately increase taxes on consumption;government expenditure should be oriented to serve people's livelihood,focuse on people's livelihood construction,optimize the market environment for commodity consumption and improving the quality of consumption of residents.