The Impact of Tax Reduction on the Chinese Urban Household's Comsupation Gap——Analysis of Consumer Behavior Based on Price Effect

By studying the elasticity of consumption demand of urban households at different income levels and the price effect of tax reduction, we can analyze the effect of tax reduction on the consumption gap of urban residents. The results show that the marginal expenditure share of all kinds of urban households' consumption does not necessarily change linearly between income levels, and there is heterogeneity between consumption behaviors at different income levels. VAT rate cut could effectively reduce the input and output unit costs and prices, contributes all categories of consumption price index to decline. Notably, such price decline is relatively remarkable in the health, social work and social security department in the service sector, which decreases the urban household's health care consumer price index and reduces the corresponding expenditure. Overall, the tax reduction can effectively close the consumption gap among urban households, but the consumption gap between the middle-income households and the low-income households still requires close attention. In view of this, the relevant policies can further alleviate the consumption gap from improving the equalization of public services, implementing the effect of tax reduction and improving the consumption tax system.