1/11
Yesterday, in his final NPC press conference, Li Keqiang explained that Beijing was choosing tax rebates to business over consumption support or even more infrastructure spending because it was a more efficient way to deliver growth.
china-embassy.org/eng/zgyw/20220…
Yesterday, in his final NPC press conference, Li Keqiang explained that Beijing was choosing tax rebates to business over consumption support or even more infrastructure spending because it was a more efficient way to deliver growth.
china-embassy.org/eng/zgyw/20220…
2/11
But supply-side measures like tax rebates to businesses would only be ta more efficient way to boost the economy if businesses had major investment needs that they were unable to satisfy because of lack of retained earnings or access to capital.
But supply-side measures like tax rebates to businesses would only be ta more efficient way to boost the economy if businesses had major investment needs that they were unable to satisfy because of lack of retained earnings or access to capital.
3/11
They would however be very inefficient in an economy suffering from demand-side constraints.
This doesn't mean businesses wouldn't prefer tax rebates anyway. Tax rebates boost profits directly, whereas spending on infrastructure and consumption does so indirectly.
They would however be very inefficient in an economy suffering from demand-side constraints.
This doesn't mean businesses wouldn't prefer tax rebates anyway. Tax rebates boost profits directly, whereas spending on infrastructure and consumption does so indirectly.
4/11
American businesses, for example, lobby aggressively for tax cuts even when savings are plentiful, the cost of capital is low, and they are sitting on piles of unused cash. As we saw with the recent Trump tax cuts, these tax cuts increase income inequality more than growth.
American businesses, for example, lobby aggressively for tax cuts even when savings are plentiful, the cost of capital is low, and they are sitting on piles of unused cash. As we saw with the recent Trump tax cuts, these tax cuts increase income inequality more than growth.
5/11
I was thinking about this when I saw Li's justification for tax rebates in his press conference. He said: "Last year I had a conversation with a dozen business representatives in an eastern province."
I was thinking about this when I saw Li's justification for tax rebates in his press conference. He said: "Last year I had a conversation with a dozen business representatives in an eastern province."
6/11
"They talked about their corporate difficulties and their hope for more macro policy support from the government."
Li proposed three ways in which the government could use disbursements to support them:
"They talked about their corporate difficulties and their hope for more macro policy support from the government."
Li proposed three ways in which the government could use disbursements to support them:
7/11
"They are, massive investment, which will help them get orders; the second is handing out consumption vouchers to boost consumer spending; and the third is tax and fee reductions for enterprises to stabilize employment and boost investment and consumption."
"They are, massive investment, which will help them get orders; the second is handing out consumption vouchers to boost consumer spending; and the third is tax and fee reductions for enterprises to stabilize employment and boost investment and consumption."
8/11
According to Li, "They were only quiet for a moment and almost unanimously chose the third policy option, because they believed it would work most directly in a most equitable and efficient way."
According to Li, "They were only quiet for a moment and almost unanimously chose the third policy option, because they believed it would work most directly in a most equitable and efficient way."
9/11
They are almost certainly wrong. These supply-side measures are only likely to be an efficient way to boost growth only if access to savings is the main constraint on investment. But in China, like in other major economies, this hasn't been the case for many years.
They are almost certainly wrong. These supply-side measures are only likely to be an efficient way to boost growth only if access to savings is the main constraint on investment. But in China, like in other major economies, this hasn't been the case for many years.
10/11
And yet it is no surprise that businesses anyway prefer that government transfers go to them directly. This is more immediately profitable than transfers to local governments for infrastructure spending or to households for consumer spending.
And yet it is no surprise that businesses anyway prefer that government transfers go to them directly. This is more immediately profitable than transfers to local governments for infrastructure spending or to households for consumer spending.
11/11
As we see in the US and Europe, businesses always prefer lower taxes and tax rebates, whether they are supply constrained or demand constrained, but they only boost overall growth in the former case.
As we see in the US and Europe, businesses always prefer lower taxes and tax rebates, whether they are supply constrained or demand constrained, but they only boost overall growth in the former case.
• • •
Missing some Tweet in this thread? You can try to
force a refresh
