Abstract
Our forecast results shows that the Chinese economy is expected to continue to slow down in 2020 due to the following reasons: First, the growth of investment is difficult to rebound shortly as, one the one hand, the increasing global trade uncertainty due to Sino-US trade friction has inhibited the investment growth of China’s export-oriented enterprises; on the other hand, the investment of real estate is difficult to grow rapidly due to strict regulation policy impact, infrastructure investment is unlikely to increase significantly owing to high government debt ratio, and negative growth in profits has weakened the growth of manufacturing investment.
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Notes
- 1.
Various measures have been adopted such as the reform of changing business tax to VAT, lowering the VAT rate, and a series of tax incentives for small and micro enterprises, combined with simplifying administrative procedures and reducing administrative fees. From 2016 to 2018, the total of fiscal tax cuts and fee reduction reached 619.6 billion yuan, 1.0 trillion yuan and 1.3 trillion yuan, respectively. In the first half of 2019, the scale of new tax reductions and reductions reached 1.17 trillion yuan. In the past three and a half years, the total amount of tax reductions and reductions was about 4.09 trillion yuan.
- 2.
Notes from the National Bureau of Statistics in the Statistical Communiqué on National Economic and Social Development in 2018: According to statistical law enforcement inspections and the fourth national economic census, some revisions were made to the base of FAI in 2017. The growth rate in 2018 is calculated on a comparable basis. If calculated according to the published total FAI data, the nominal growth rate in 2018 has plummeted to 0.6%. And as of August, 2019, the growth rate of FAI showed a negative growth of −3.5%.
- 3.
Theoretically, if the tax burden can be completely passed on to the downstream link, the impact of the turnover tax on the cost of the enterprise should be neutral, that is, all tax burden costs are borne by the final consumer segment. Therefore, during the period of strong consumer demand, enterprises can pass part of, all of or even excess of the tax burden to the final consumer; while during the period of sluggish consumer demand, most of or even all of the tax burden is borne by the enterprise. Therefore, during the economic downturn, large-scale turnover tax relief does help companies reduce the cost of tax, but it does not encourage enterprises to increase inventory investment.
- 4.
A recent study by Benzarti and Carloni (2019) confirms that during the economic downturn, the government hopes to encourage companies to lower product prices through large tax breaks to stimulate consumer demand, increase employee wages and increase investment, but in fact, the effect of this fiscal policy is quite limited and costly. Taking the French government's VAT exemption policy for restaurant companies in 2009, the government's price for the above-mentioned VAT exemption policy is 3 billion euros, of which about 55% of tax credits are taken away by business owners and converted into the increase in corporate profits, but almost no incentive or companies to increase employment demand and investment expansion.
- 5.
André (2016) indicate that household debt increases will help at first to promote household consumption. However, with the expansion of debt scale, the credit crunch caused by the increase in default risk will inhibit household consumption.
- 6.
Currently, the loans of China’s household sector account for one-third of the total loan. Besides, taking the 2017 data as an example, the household sector's deposits accounted for 33.3% of the financial institutions' RMB deposits, and also accounted for one-third of the total. Therefore, it can be considered that the change of resident deposits and loans is one of the important factors determining the price of funds in the capital market.
- 7.
China’s Ministry of Finance: After the tax threshold is raised, the annual tax revenue will be reduced by 320 billion yuan, https://finance.sina.com.cn/roll/2018-08-31/doc-ihinpmnq8156686.shtml.
- 8.
Statistical data show that the wages paid by the working-class in the four first-tier cities, Beijing, Shanghai, Guangzhou and Shenzhen, account for 40% of China’s total personal income tax revenue, http://www.sohu.com/a/130030698_456914.
References
André, C. (2016, August). Household debt in OECD countries: Stylised facts and policy issues. In The Narodowy Bank Polski Workshop: Recent Trends in the Real Estate Market and Its Analysis-2015 Edition.
Benzarti, Y., & Carloni, D. (2019). Who really benefits from consumption tax cuts? Evidence from a large VAT reform in France. American Economic Journal: Economic Policy, 11(1), 38–63.
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Center for Macroeconomic Research at Xiamen University. (2020). Policy Simulation: Effects of China’s Tax Cuts Policy to Boost the Growth of Household Consumption. In: Chinaʼs Macroeconomic Outlook. Current Chinese Economic Report Series. Springer, Singapore. https://doi.org/10.1007/978-981-15-3223-8_3
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DOI: https://doi.org/10.1007/978-981-15-3223-8_3
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