Double Dividends of China's 2018 Personal Income Tax Reform: Personal Income Growth and Household Consumption Upgrading

Using nationally representative panel data from the China Family Panel Studies (CFPS, 2010–2022), this paper evaluates the effects of China’s 2018 personal income tax reform through a difference-in-differences framework with continuous treatment intensity. The reform significantly increased individual income, with larger gains observed among urban residents, men, high-skilled workers, and those eligible for special additional deductions—including for children’s education, mortgage interest, and eldercare. These income gains were not accompanied by changes in labor supply, consistent with mechanical tax relief. At the household level, greater tax relief led to higher total consumption, with effects that became more pronounced over time. The reform also facilitated consumption upgrading, reflected in a decline in the food share and an increase in the share of spending on education, culture, and entertainment.