Impact of the VAT reduction policy on local fiscal pressure in China in light of the COVID-19 pandemic: A measurement based on a computable general equilibrium model.

ABSTRACT

Value added tax (VAT) reduction is an important tool for cultivating new driving forces for economic development, and it has had a notable impact on local fiscal pressure. Taking the 2018-2019 VAT rate reduction in China as an example, this paper uses a CGE model to estimate the impact of the VAT reduction policy on local fiscal pressure in China in light of the COVID-19 pandemic. The results show that local fiscal pressure increased from 0.342 to 0.435, an increase of 27.08%. The study provides policy implications on optimizing tax structure and alleviating local fiscal pressure.