| Abstract | The paper constructs a Computable General Equilibrium (CGE) model to match the actual taxation structure for current China; and analyzes the dynamic impact of Value-added Tax (VAT) reform conducted in China between 2009 and 2012. In order to explore the two major tasks in such VAT reform, i.e. Transformation (from production type to consumption type) and Expansion (the area of levying VAT including some industries levied business tax previously), the model has divided national economy into 22 industries with two kinds of enterprises: domestic and foreign firms, and allows detailed taxation operation such as levying, waiving, deduction etc. for the period before and after such reform. It shows that both transformation and expansion have resulted in positive effect of investment and effect of income, and then boost the economic growth. This economic growth, however, has been shrunk due to the leakage effect. In addition, whatever the VAT transformation or VAT expansion, the income effect, on the whole, will be larger than the investment effect. Whether the VAT transformation increase economic growth or not mainly depends on the efficiency improvement resulting from firms’ equipment renewal and modernization. But, the VAT expansion itself can bring both effects of income and investment and, consequently, to make economy growth. The key factors for VAT expansion are the tax base and choosing tax rate. |