Policy consistency in targeted VAT incentives: evidence from China’s 2023 additional input VAT deduction schemes
China’s additional input VAT deduction (AD) policy has shifted from temporary service-sector relief to targeted support for integrated circuits (IC), advanced manufacturing (AM) and industrial mother-machine (MM). Using a 2023 China Social Accounting Matrix (SAM) and a VAT-specific 47-sector CGE model, this paper evaluates the 2023 policy package and related counterfactuals. Under the Keynesian short-run closure, the full package reduces GDP, government revenue, VAT revenue, employment, and consumption relative to the no-AD benchmark and yields negative EV, CV, and EB values reported as absolute monetary changes. Under the neoclassical closure, however, the signs of the GDP and welfare effects reverse, indicating that the estimated macroeconomic effects are closure-dependent. Within the Keynesian closure, the qualitative direction of the results remains robust to Global Trade Analysis Project (GTAP) elasticity replacement, proportional elasticity changes and alternative statutory VAT-rate assumptions, although the magnitudes vary. These findings show that institutional policy objectives do not automatically produce aggregate gains and that policy assessment should jointly consider sectoral eligibility, deduction rates, VAT-rate design, fiscal consequences, and macroeconomic adjustment assumptions.
Authors
- H W Xiong (ORCID: https://orcid.org/0009-0003-9982-3225)
- Junyu Wang
Institutions
- Shanghai Lixin University of Accounting and Finance (CN)
- University of Ljubljana (SI)
Publication Details
- Journal
- Applied Economics
- Published
- 2026-09-16
- DOI
- https://doi.org/10.1080/00036846.2026.2731164
- Primary Topic
- Taxation and Compliance Studies
- Type
- article
- Field-Weighted Citation Impact
- 0.00