Research On The Impact Of China’s Tax Structure To Consumption Expansion

Tax structure is the overall structure formed of a number of coordinated and complementary taxes. Tax structure is based on a country’s economic conditions and financial needs. Tax structure includes taxes and tax burden. Taxes are in commanding position. Whether the design of taxes is reasonable decides whether tax structure can fully play its due role or not. Tax reform in 1994 determined the current "double subject" tax structure of turnover tax and income tax in China. However, during year 1994 and 2014, average turnover tax in total tax revenue share was 62.11%, while average income tax in total tax revenue share was 22.87% which was only one-third share of the turnover tax. Turnover tax is regressive. Tax burden of the lower income groups is relatively heavier than that of the higher income groups. The regressive feature of turnover tax is not conducive to narrow the income gap. And Keynes’s "diminishing marginal propensity to consumption" law shows that the marginal propensity to consumption and revenue was negatively correlated. Higher income groups have the lower marginal propensity to consumption. Widening income gap will reduce the marginal propensity to consumption of the entire population which is not conducive to the expansion of consumption. On the other hand, the turnover tax is generally embedded in commodity prices which will push up the price level to some extent when the proportion of turnover tax is too large.In recent years, the rate of final consumption (final consumption/GDP) decreased. In 1994, the final consumption rate was 58.73%, while in 2014 the final consumption was only 51.79%, declined by nearly 7 percentage points. Household consumption rate (household consumption/GDP) declined from 44.50% inl994 to 38.19% in 2014, declined by 6 percentage points. And marginal propensity to consumption has been declining ever since 1994. In 1994, China’s resident marginal propensity to consumption was 0.929, while in 2014, it declined to 0.692. This phenomenon is not conducive to long-term sustainable development of China’s economy. Whether China’s current tax structure is causing the declining consumption rate to a certain extent or not? By what means does the tax structure affect consumer demand? How to adjust tax structure to achieve the purpose of expansion of consumption? These are problems to be studied and solved in China.The main issue of this study is the impact of tax structure on consumption. First, this paper studied the tax structure theory and the contemporary Western consumer theories, studied the intrinsic link between consumption and tax structure, analyzed factors, conduction variables and influence mechanism of tax structure on consumption. These are theoretical basis and analytical framework of this paper. Secondly, this paper studied the features of China’s tax structure from several aspects such as the classification of the tax structure, indirect taxes/direct tax structure, tax system structure, taxes status structure and tax structure progressive degree. And this paper studied China’s current consumption situation from three aspects:the consumption scale, the consumption level and the consumption structure. Thirdly, based on SVAR and Almon model, this paper studied how tax structure affects consumption empirically by two channels:the distribution of income and price levels. Finally, based on multi-factor analysis, this paper elected ten factors into models to empirically analyze the impact of China’s indirect taxes/direct tax structure, tax system structure and taxes status structure on consumption. Then we draw some conclusions and gave some ideas of tax restructuring and policy recommendations.The main contents of this paper are as follows:Part Ⅰ:Introduction. This part described background, significance, related concepts and research review. Part Ⅱ:The Theoretical Basis of Tax Structure Effecting Consumption. This part studied tax structure theories such as the Theory of Tax Neutrality, Taxation Change Theory and Western Contemporary Consumer Demand Theories such as Absolute Income Theory of Consumption, Relative Income Theory of Consumption, Life-cycle Theory of Consumption, Permanent Income Theory of Consumption, Random Walk Consumption Theory. Based on these theories, this paper analyzed the mechanism of tax structure to consumption and established a full theoretical analysis framework. Part Ⅲ:Statistics of China’s Current Tax Structure and Consumption Situations. This part studied the features of China’s tax structure from several aspects such as the classification of the tax structure, indirect taxes/direct tax structure, tax system structure, taxes status structure and tax structure progressive degree. And this paper studied China’s current consumption situation from three aspects:the consumption scale, the consumption level and the consumption structure. Part Ⅳ:Mechanism of Tax Structure to Consumption-Income Distribution Channel. Based on the error correction model and SVAR Model, this section was mainly discussing how tax structure affected consumption through income distribution channel. Through research, we draw a conclusion that China’s current tax structure widened income distribution gap to some extent which was negatively correlated to residents’per capita consumption expenditure. China’s current tax structure which was dominated by indirect taxes had regressive nature and this nature lowered the consumption demand. Part Ⅴ:Mechanism of Tax Structure to Consumption-Price Level Channel. Based on SVAR Model and Almon Model, this section analyzed how tax structure affected consumption through price. We draw a conclusion that China’s current tax structure led the rise of the price level which is an important factor of consumption demand. This section proved that China’s tax structure reduced consumption demand by raising price level. Part VI:Research on the Impact of Tax Structure on Consumption:Based on Factor Analysis. Based on previous theoretical and empirical studies of the paper, this chapter using factor analysis added income-related variables, price-related variables and policy environment related variables as control variables into the model to analyze the impact of China’s indirect taxes/direct tax structure, tax system structure and taxes status structure on consumption demand. After empirical analysis, this part drawed the following conclusions:in the long term, the proportion of indirect taxes would have negative effects on consumption while the enhancement of the proportion of direct taxes would expand consumption demand. The proportion of turnover tax, income tax and other tax had positive effects on consumption, though the effect of turnover tax was weak. The proportion of property tax had a negative effect on consumption maybe due to unreasonable tax settings and low proportion. When we discussed the five main taxes: value-added tax, corporate income tax, personal income tax, consumption tax and business tax, we found that China’s value-added tax, corporate income tax and personal income tax expanded China’s consumption demand while China’s consumption tax and business tax was negatively correlated to China’s consumption demand. Part VII: Conclusions, Ideas of Tax Restructuring and Some Policy Recommendations. Based on the previous theoretical and empirical research, this part proposed some ideas of tax restructuring and related policy recommendations on the purpose of expanding consumption.Through combing the tax structure theories and Western Contemporary Consumer Demand Theories, deriving the mechanism of tax structure’s influences on consumption, this paper actually expanded the research of two areas to some extent. Through econometric models, this paper studied different effects of different tax structure on consumption and provided evidence of tax restructuring which is most conductive to expand consumption demand. This paper had some theoretical and practical significance.