The VAT reduction policy is an important part of China’s large-scale tax reduction and fee reduction policy since 2018, which mainly includes two sub-policies: tax rate reduction（tax rate-type preferential policy）and additional deduction（tax amount-type preferential policy）. Quantitative measurement of the tax reduction and economic effect of the two policies will help to provide suggestions for the subsequent reform of China’s VAT system, and fill the gap in quantitative research on the impact of additional deduction policy.

Based on China’s input-output table, this paper compiles a social accounting matrix（SAM）, builds a dynamic computable general equilibrium model（DCGE）with a VAT deduction mechanism, and measures the economic effect of VAT rate reduction policy. The study finds that: （1）The reduction of VAT rate as a tax rate-type preferential policy can produce a good overall tax reduction effect, and the VAT burden of most industries has dropped significantly. As a tax amount-type preferential policy, the additional deduction policy has a significant effect of targeted tax reduction. To a certain extent, it has hedged the increase in the tax burden of the production and living service industries. The continuity of the tax reduction effect of the two policies is better.（2）The reduction of VAT rate can reduce the effect of taxation distortion, improve the efficiency of economic operation, and promote the growth of added value of various industries. The tax amount-type preferential policy has little impact on the enterprise’s factor allocation decisions, and has not significantly promoted output growth. From a dynamic point of view, the economic growth effect of the reduction of VAT rate continues to expand.（3）Both tax reduction policies have increased corporate profits and residents’ income. The government’s corporate income tax revenue and personal income tax revenue have increased, but due to the decline in VAT revenue, total tax revenue has declined to a certain extent.

The tax rate-type preferential policy can effectively improve the efficiency of resource allocation and promote the growth of added value in various industries. The effect of tax rate reduction policy is obviously better than that of additional deduction policy. Follow-up policy reforms should continue to focus on tax rate reduction, but attention should be paid to the balanced decline of tax burdens in various industries. As the additional deduction policy will expire at the end of 2021, it can be replaced by a tax rate reduction or tax rate merger policy.