Personal Income Tax Reform and Household Consumption: Empirical Study Based on Quasi Experiment

Abstract

Abstract:

Based on the dataset of China Family Panel Studies (CFPS), this paper uses the Quasi experimental method (DID and DID-PSM) to study the stimulating effect of personal income tax reform in 2011 on household consumption. It is found that personal income tax reform in 2011 has a significant stimulating effect on household consumption and the effect is more significant in the self-employed households because of financial constraints. In terms of consumption type, personal income tax reform mainly increases the consumption of food, consumer goods and residence, and there is no significant change in the expenditure of education, entertainment and health care. In terms of region, tax reduction on wage significantly promotes consumption in eastern, central and western regions, but the level of stimulation is decreasing in turn; however, for tax reduction on self-employed operating income, the stimulating effect is biggest in the western region, second in the east and third in the middle. The conclusion of this paper provides empirical evidence for the government to stimulate consumption through reducing personal income tax.

Key words: personal income tax reform, household consumption, DID-PSM

Wang Xiuyan, Dong Changrui, Jin Weidong. Personal Income Tax Reform and Household Consumption: Empirical Study Based on Quasi Experiment[J]. , 2019, 31(2): 36-48.

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