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National Accounting Review

2020, Volume 2, Issue 1: 26-52. doi: 10.3934/NAR.2020002
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Research article

SAM-based analysis of China’s economic system and measurement of the effects of a VAT rate cut after the tax reform

  • 1.
    School of Statistics, Shanxi University of Finance and Economics, China
  • 2.
    Department of Statistics, Computer Science, Applications “G. Parenti”, University of Florence, Italy
  • 3.
    Renmin University of China, China
  • Received: 31 October 2019 Accepted: 03 December 2019 Published: 09 December 2019

  • JEL Codes: E16, E27, C40

  • In this paper,based on a 2015 social accounting matrix (SAM) for China elaborated by us,we conducted a comprehensive analysis of the structure of China's economic system using the impact multiplier model. Having this analysis as a background,we focused on the tax reform China completed in 2016, moving from a bifurcated system based on a business tax (BT) and Value Added Tax (VAT) to an entirely VAT-based system. The effects of this reform remain under observation and discussion,regarding not only the reduction in the tax burden on the industrial and service sectors but also economic improvements. Nonetheless,currently,an analysis of the existing literature on the topic indicated consensus that the reform had positive effects in both respects. Given this context,it would be interesting to analyse what effects a selective reduction in the VAT rate would have on China's economy under this new VAT-based system. To the best of our knowledge,no such analysis has been performed. We attempted to fill this gap and,based on the above purpose-built SAM,we conducted an impact multiplier analysis of the aforementioned effects. Several results have been achieved. From the estimation of the industry-level endogenous coefficients there is evidence of a considerable average degree of integration among the industries and of the key role of "Manufacturing" in China's production structure. Moreover,the significant orientation of the industries to the production of value added is highlighted. The analysis of the impact of the indirect tax reform have demostrated that making the central government the sole operator of indirect taxes is a general advantage. Overall,there is evidence that the economic system strongly reacts—by a nearly 4% increasing—to an average VAT cut of 1.2% for 6 industries,thus highlighting its elasticity to this kind of exogenous shocks.

    Citation: Kewei Ma, Guido Ferrari, Zichuan Mi. SAM-based analysis of China’s economic system and measurement of the effects of a VAT rate cut after the tax reform[J]. National Accounting Review, 2020, 2(1): 26-52. doi: 10.3934/NAR.2020002

    Related Papers:

  • In this paper,based on a 2015 social accounting matrix (SAM) for China elaborated by us,we conducted a comprehensive analysis of the structure of China's economic system using the impact multiplier model. Having this analysis as a background,we focused on the tax reform China completed in 2016, moving from a bifurcated system based on a business tax (BT) and Value Added Tax (VAT) to an entirely VAT-based system. The effects of this reform remain under observation and discussion,regarding not only the reduction in the tax burden on the industrial and service sectors but also economic improvements. Nonetheless,currently,an analysis of the existing literature on the topic indicated consensus that the reform had positive effects in both respects. Given this context,it would be interesting to analyse what effects a selective reduction in the VAT rate would have on China's economy under this new VAT-based system. To the best of our knowledge,no such analysis has been performed. We attempted to fill this gap and,based on the above purpose-built SAM,we conducted an impact multiplier analysis of the aforementioned effects. Several results have been achieved. From the estimation of the industry-level endogenous coefficients there is evidence of a considerable average degree of integration among the industries and of the key role of "Manufacturing" in China's production structure. Moreover,the significant orientation of the industries to the production of value added is highlighted. The analysis of the impact of the indirect tax reform have demostrated that making the central government the sole operator of indirect taxes is a general advantage. Overall,there is evidence that the economic system strongly reacts—by a nearly 4% increasing—to an average VAT cut of 1.2% for 6 industries,thus highlighting its elasticity to this kind of exogenous shocks.


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