The effects of tax and fee reduction policy on mitigating shock of the COVID-19 epidemic in China

Abstract

ABSTRACT The lockdown measures taken by the Chinese government have proven to be an effective approach to prevent COVID-19, but have a major negative impact on the economy. The Chinese government quickly implemented a large-scale tax and fee reduction policy to hedge against negative shocks. In light of these facts, this article constructs a multi-regional dynamic-recursive computable general equilibrium (CGE) model to evaluate the short-term and medium-term effects of COVID-19 on the macroeconomy, energy and environment. The results show that: (1) Without adopting tax incentives, GDP, residents’ consumption, exports, and secondary and tertiary industry output will grow weakly in 2020. Leapfrogging development will occur in 2021, whereas import volume and consumer price index will drop sharply. (2) If the tax reduction policy is introduced, GDP will increase by 2.83% and 7.4% in 2020 and 2021. Imports, exports, and output of the secondary and tertiary industries will grow substantially, along with a significant rise in fossil fuels consumption and carbon emission. (3) Hubei, the worst hit by COVID-19, will quickly resume normal development.