Evaluating the impact of special additional deductions policy on urban-rural household vulnerability: Insights from China Family Panel Studies

Despite the eradication of absolute poverty in China post-2020, many Chinese households remain vulnerable to multidimensional poverty. This study uses micro-panel data from the China Family Panel Studies (CFPS) from 2016 to 2020 to evaluate the effects of the special additional deduction policy (SADP) on household vulnerability to income and health poverty. Employing a multi-vulnerability to poverty model, the study quantifies these vulnerabilities and applies a non-linear logistic continuous difference-in-differences model to assess the effectiveness of the SADP. The 2019 implementation of SADP for personal income tax serves as a quasi-natural experiment. Findings indicate that the SADP significantly reduces household vulnerability to income and health poverty by alleviating tax burdens and enhancing income standards and consumption structures. However, the policy's impact varies across urban and rural areas, income groups, and access to public medical insurance, with more pronounced effects observed in medium and north-east China compared to eastern and western regions. This study underscores the need for optimizing the income redistribution mechanism and considering regional and individual differences in SADP implementation. Enhancing the alignment between taxation and social security measures can further strengthen the government's fiscal redistribution efforts, promoting equity and reducing household vulnerability.