Social Sciences in China (Chinese Edition)

No. 5, 2025

Should Fiscal Subsidies Target Households or Firms? A Systematic Evaluation Based on the Stock-Flow Consistent Model

(Abstract)

Yao Dongmin, Dong Hongru and Xu Aohan

In a policy environment characterized by complexity and shifting objectives, choosing the appropriate recipients of fiscal subsidies is central to improving macroeconomic governance. This study employs a stock-flow consistent (SFC) model to systematically evaluate the differing policy effects of subsidies directed toward households versus those aimed at firms. The results show that household subsidies are more effective at increasing per capita wages and enhancing fiscal sustainability, while subsidies to enterprises better support corporate profitability. However, the relative advantages of each approach are not fixed; they depend on factors such as the implementation period of the policy, changes in households’ marginal propensity to consume, and the pace of fiscal expenditure growth. Enhancing households’ marginal propensity to consume improves the short-term effectiveness of subsidies. Importantly, the strengths of household-and firm-targeted subsidies are complementary rather than mutually exclusive. To achieve a dynamic balance between short-term demand stimulus and long-term sustainable supply, China should clarify the core objectives of its subsidy policies and retain flexibility in determining both the targets and the delivery mechanisms.