Personal income tax reform and household savings rates: Evidence from a quasi-natural experiment in China

Yulong Chen, Yating Li, Wenrui Zeng and Yang Zhao

International Review of Financial Analysis, 2024, vol. 96, issue PB

Abstract: This study examines the effects of the 2018 personal income tax reform on household savings rates using data from the China Household Finance Survey (CHFS). Employing a quasi-natural experiment approach, our findings demonstrate that the reform has led to an increase in savings rates among Chinese households. Mechanism tests indicate that income uncertainty serves as the underlying mechanism linking the personal income tax reform to household savings rates. Heterogeneity analyses reveal that the impact of the personal income tax reform on household savings rates is particularly pronounced for households with lower income and those whose heads have lower levels of education. Additionally, the personal income tax reform has elevated the proportion of household development and enjoyment consumption in total consumption. This study provides a novel micro-perspective on the influence of Chinese fiscal policies on residents' saving behavior and offers valuable insights for promoting high-quality consumption and fostering high-quality economic development.

Keywords: Personal income tax reform; Household savings rates; Quasi-natural experiment; Chinese households (search for similar items in EconPapers)
JEL-codes: D12 D14 G51 H24 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:96:y:2024:i:pb:s1057521924006586

DOI: 10.1016/j.irfa.2024.103726

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