Transmission mechanism analysis of personal income tax on household consumption based on two-way fixed effect model

Based on China's provincial panel data from 2010 to 2022, this paper systematically explores the impact mechanism and transmission path of personal income tax on household consumption by using two-way fixed effect model and mediation-moderating effect analysis method. The results show that: (1)Personal income tax burden significantly inhibited household consumption, among which wage income was the core intermediary channel (indirect effect accounted for 38.27%), while net operating income and net property income failed to pass the significance test due to the fluctuation of tax source and the difference of marginal propensity to consume; (2)Transfer of net income significantly alleviates the inhibitory effect of individual tax on consumption through the interaction effect; (3)Regional heterogeneity analysis shows that the inhibitory effect of personal income tax is significant in the eastern region due to the high economic activity and wage income, while the effect is not significant in the central and western regions and the northeast region due to the slow growth of income and the rigid consumption structure. This study constructs a ternary framework of “tax burden-income structure-consumption”, and proposes to optimize the tax system to provide theoretical support.