Economics Seminar（2014-26）

Topic:Tax Reduction and Household Consumption and Investment Decisions in Rural China

Speaker:Binzhen Wu

Affiliation:TsinghuaUniversity

Time:Tuesday, 25 November. 16:00-17:30pm

Location:Room 217, Guanghua Building 2

Abstract：

The reduction of the agricultural tax between 2004 and 2006 was one of the most important reforms in rural China in the new century. We exploit this policy change to investigate how the increase in the after-tax disposable income affects rural households’ consumption and investment decisions. The results show that the effect of tax reduction on consumption is inverse U-shaped. Tax reduction stimulates more labor and time inputs for nonagricultural production, including both migration and local non-agricultural production. It reduces the corresponding inputs for agricultural production. Households’ pre-tax income increases after the tax change.This indicates that the long-run effect of tax reduction on consumption can be different from the short-run effect. Finally, there is little change in the agricultural output.

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