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

Author

Listed:
  • Chen, Yulong
  • Li, Yating
  • Zeng, Wenrui
  • Zhao, Yang

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.

Suggested Citation

  • Chen, Yulong & Li, Yating & Zeng, Wenrui & Zhao, Yang, 2024. "Personal income tax reform and household savings rates: Evidence from a quasi-natural experiment in China," International Review of Financial Analysis, Elsevier, vol. 96(PB).
    • Handle: RePEc:eee:finana:v:96:y:2024:i:pb:s1057521924006586
    DOI: 10.1016/j.irfa.2024.103726
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    More about this item

    Keywords

    Personal income tax reform; Household savings rates; Quasi-natural experiment; Chinese households;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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