The Impact Of Tax Reduction Policies On Local Fiscal Sustainability

The lowering of taxes and fees,as a key tool of active fiscal policy,has the function of macro-control,eases the burden on businesses,and stabilizes economic growth.China was unavoidably impacted by the tidal waves of the global financial crisis brought on by subprime mortgages in the United States.As a result,China implemented structural tax reduction policies that effectively reduced market pressure and injected life into the economic recovery.Large-scale tax reduction policies started to be implemented in 2015 in order to further support the economic growth of this giant ship,and from 2016 to 2021 alone,tax and charge reductions totaled more than 8.6 trillion yuan.China will face the triple pressures of "demand contraction,supply shock,and weakening expectations" in 2022,prompting the implementation of a new combined tax and fee support policy.The total amount of new tax cuts,fee reductions,tax rebates,and tax relief fees in the country had surpassed 4.2 trillion yuan.However,under China’s current fiscal and taxation system,the continuous large-scale tax reduction policy,combined with the impact of the epidemic,has increased pressure on local governments,and local governments are facing challenges such as economic revenue reduction,rigid fiscal expenditure,and government debt expansion,all of which have serious implications for local government sustainability.The ability to absorb fiscal revenue in the local fiscal revenue system is directly affected by the scale and growth rate of tax revenue,which affects the revenue and expenditure of local governments,and thus the sustainability of local finance.How to fully exploit the role of tax and fee reduction policies in stabilizing growth and adjusting structure to promote development,while relieving local pressure and enhancing local sustainability,has become a critical issue that local governments cannot ignore.Based on this context,this paper first employs the method of theoretical analysis to explain the relevant concepts and theoretical basis,and then divides the evolution of tax reduction policy into two stages.Second,the impact mechanism of tax on local fiscal sustainability is examined from both positive and negative perspectives,providing a theoretical foundation for the exploration of this paper.Based on the theoretical analysis,this paper employs the entropy method to objectively empower local fiscal sustainability,generates a comprehensive evaluation index,then conducts regression analysis of panel data in 31 provinces using a dynamic panel model to test the impact of tax reduction policies on local fiscal sustainability,and finally proposes policy recommendations for improving tax and fee reduction policies and improving local fiscal sustainability.