Tax Salience and Household Consumption in China: A Re-examination Based on the Nature of Taxation

The concept of tax salience—the extent to which a tax's visibility influences consumer behavior—has attracted increasing attention in behavioral economics. This study re-examines tax salience within the institutional context of China’s distinctive tax structure. Using panel data from 31 provinces spanning 2015 to 2020 and applying a fixed-effects model, we assess the impact of value-added tax (VAT), consumption tax, and individual income tax on per capita household consumption expenditure. The empirical results reveal a nuanced pattern: VAT and consumption tax are significantly and positively associated with consumption, whereas individual income tax exerts a significant negative effect. Notably, the influence of tax salience is found to be secondary to the intrinsic economic attributes of the taxes themselves. Taxes embedded in prices—such as VAT and excise taxes—tend to elevate expenditures, especially on inelastic necessities, due to price increases. In contrast, taxes that directly reduce disposable income—such as individual income tax—curtail consumption capacity. The study argues that for most consumers, decision-making is guided primarily by final prices and available income, with the specific tax component often overlooked. These findings challenge the prevailing emphasis on tax salience as an independent determinant and contribute to a more nuanced understanding of tax policy design, particularly in the context of developing economies such as China.