Impact of tax cuts and fee reductions on Chinese residents’ consumption: An empirical study based on the DSGE model

Yang Zhao, Xueqiang He, Chuanming Yang and Hongyang Yu

Finance Research Letters, 2025, vol. 81, issue C

Abstract: The problem of residents’ insufficient consumption has been a long-term concern in China, and reducing taxes and fees is an important aspect of the nation’s active fiscal policy. This study constructs a four-department dynamic stochastic general equilibrium model involving heterogeneous households, manufacturers, local governments and the central bank to examine the impact of tax and fee reductions on household consumption. The results reveal three relevant findings. (1) Reduced government fees will crowd into overall household consumption, and the effect on output is not obvious in the medium or long term. (2) Reduced tax rates will crowd out household consumption, with a more obvious long-term impact on output and consumption. (3) The impact of these two types of shocks has different effects on indebted and debt-free households’ consumption.

Keywords: Tax cuts and fee reductions; Residents consumption; Fiscal policy; Heterogeneous families (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:81:y:2025:i:c:s1544612325006567

DOI: 10.1016/j.frl.2025.107396

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