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The Effect of an Introduction of Retail Sales Tax in China

Author

Listed:
  • Shiyu Li

    (China Financial Policy Research Center School of Finance Renmin University of China Beijing, 100872, China Author email: lishiyu@ruc.edu.cn)

  • Shuanglin Lin

    (National School of Development Peking University Beijing, 100871, China and Department of Economics College of Business Administration University of Nebraska Omaha Omaha, Nebraska, USA Author email: shuanglin@pku.edu, slin@unomaha.edu)

  • Suresh Narayanan

    (School of Social Sciences Universiti Sains Malaysia Penang, Malaysia nsuresh@usm.my Author email: nsuresh@usm.my)

Abstract

This paper develops a dynamic equilibrium model of overlapping generations to study the effect of an introduction of a retail sales tax (RST) in China. Total government tax revenue is fixed, consumption-type value-added tax (VAT) is reduced in response to the introduction of RST, and an output tax exists. An introduction of RST accompanied by a decrease in VAT increases capital accumulation and welfare in the steady state. In the transition period, an introduction of RST accompanied by a decrease in VAT increases capital accumulation but decreases the current generation's welfare. Simulations based on the data from China show that introducing an 8 percent RST increases capital accumulation by 0.43 percent in the steady state.

Suggested Citation

  • Shiyu Li & Shuanglin Lin & Suresh Narayanan, 2018. "The Effect of an Introduction of Retail Sales Tax in China," Asian Economic Papers, MIT Press, vol. 17(2), pages 1-20, Summer.
    • Handle: RePEc:tpr:asiaec:v:17:y:2018:i:2:p:1-20
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    1. Abdelhak Bassou & Badr Mandri & Bouchra Rahmouni & El Mostafa Rezrazi & Eric Ntumba & Fatima Ezzahra Mengoub & Hafsat Abiola & Mbuih Zukane & Mohamed Benaïssa & Mohammed Loulichki & Otaviano Canuto & , 2018. "ATLANTIC CURRENTS : An Annual Report on Wider Atlantic Perspectives and Patterns - Overcoming the Choke Points," Books & Reports, Policy Center for the New South, number 28.
    2. Mersky, Joshua P. & Janczewski, Colleen E. & Plummer Lee, ChienTi & Yasin, Tajammal, 2022. "Impact of home visiting programs on parenting stress in low-income women: Findings from a community-based trial at an urban health department," Children and Youth Services Review, Elsevier, vol. 142(C).

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