China’s tax policy response to the global fi nancial crisis

Abstract

VAT reform constituted the most important tax policy action China took during the global financial crisis in 2008-9. If China had had a more typical tax structure, this specific policy instrument (as well as certain others) would not have been available. Conversely, because of the idiosyncrasies of China’s current tax structure, some of the policy measures commonly deployed in other countries also cannot be used. In comparing China and Europe in the tax policies adopted since 2008, therefore, major differences in prior tax structures must be taken into account. There are also two other potential determinants of China’s tax policy. One is the Chinese government’s general propensity (or lack thereof) to use taxation as an instrument of economic policy. The other is the fate of fundamental tax reforms, in the absence of which tax policy options that have macro-economic significance are limited.