Research On Tax Elasticity

Tax elasticity reflects the relationship between the taxation growth rate and the economy growth rate. If government wants to reform tax policy or make taxation decision, so as to realize the desirable combination of the pubic goods and taxation or regulate and control macro economy effectively, it should be known that in the tax function, how the taxation react to the change of each variable, in order to decrease the distortion extent of taxation to the economy and society and relieve the politic depression. Tax elasticity is a kind of tax function, which describes the reflection extent of taxation revenue to GDP (Gross Domestic Product). It has economic meaning as follow:when GDP grow by one percent, how much taxation grows.In a certain period of time, if the basic taxation system doesn't have great change and proportional tax rate is the major, the circumstance that tax elasticity is continuously beyond 1 shouldn't appear in theory. However, the empirical data shows. that in our country since 1993, tax elasticity is always higher than 1. The phenomenon that taxation growth rate is higher than economy growth rate absorb broad and great attention of common people, government, academic circle, media and society. Taxation increase is a question full of practical meaning, its rapid increase in some extent has cause government's panic, firstly whether, such rapid increase is normal, secondly if it is normal, how to explain or understand? Whether tax payer can afford such high tax elasticity? If it is abnormal, how to control? So, research on tax elasticity is very important and necessary.Tax elasticity essentially reflects the relation between taxation growth and economy growth. In the formula of tax elasticity, the denominator is the GDP growth rate, the numerator is the taxation growth rate. So, all variable which has effect on the numerator and denominator will change the final figure. The academic makes analysis from each angel with lots of document about the cause of the phenomenon, but they haven't made convincible conclusion. This paper has an idea that among all factors that affect the tax elasticity, economy factor and taxation factor can be defined.In the decision of tax elasticity, economy factor is the main, which contribute 83% for taxation revenue. Then, what is on else the effect of economy to tax elasticity, how to decide, what is the transmission mechanism and its mathematical expression, namely evaluating index. All these question need to be analyzed clearly.30 years' marketization has relieved the economy potential which had been long pressed by the planned economy. This can be demonstrated by such fact as follows:we has thrived after the market had been the criterion of resource allocation, macro adjusting had been enforced from directly to indirectly and from subject judge to scientific decision, social management had been enforced from by administration means to compound means. Just because of above measures, our country's GDP has been growing rapidly with a good trend for several years. Seeing from the relationship between taxation and economy, taxation is allocation of GDP. During the course of allocation, taxation is the focus of allocation between government and tax bearer, between central government and local government, which is the most concerned and most sensitive question. The figure of tax elasticity explains the extent of allocation. For example, in 2008, the tax elasticity is 1.97, which has the meaning that when economy grows 1%, taxation will grow 1.97%, which is nearly double of economy growth rate.As far as taxation factor is concerned, taxation system and management contributes 17% to taxation revenue. The number is low, which shows that its influence isn't huge, but this is only a result which compared with economy factor, also not meaning that its influence to tax elasticity is not big. Before substantial analysis, there are two points should be explained. Firstly taxation system will be relatively stable after it is determined, so that the influence of government's temporary taxation policy to tax elasticity can be eliminated. Secondly, this paper choose the period from 1994 to 2008, in which taxation system and management didn't have critical transform that have influence to the tax elasticity. Certainly, there were several adjustments of taxation system after the People's Republic of China is founded. New taxation system built in 1950 and amended in 1953, industrial and commercial taxation system reformed in 1958, income tax of industry and commerce adjusted in 1963, taxation principle is simplified in 1973, the second phase of replacement of profit by tax in 1984, the comprehensive reform of tax system in 1994, income tax of domestic and foreign enterprise unified in 2008, value-added tax transformation in 2009. From 1978 to 1993, tax elasticity nearly is below 1, except some special years. In 1994, China taxation system has changed fundamentally or innovated greatly. After then, tax elasticity is always beyond 1. This condition reflects that higher tax elasticity is related to the great change of taxation system, which in addition showing that the reform in 1994 is a measure of increasing taxation, and also has practical effect. From another aspect, taxation management factor has different character in different stage, because after a magnificent taxing technique is enforced, tax collection and administration will go to a high level, which is also one cause of tax elasticity increasing. But after tax collection and administration come to a stage level, its marginal effect to increasing taxation revenue will become faint.Under the basis that taxation system and management doesn't change, the more economy expand and increase, the less tax elasticity should be. However, experience data shows that tax elasticity is more than 1. The reason is that progressive tax rate, progressive tax system and the promoting of tax management and other factor's multi influence make china's taxation also has the character of being progressive, and then cause the tax elasticity is very high. This is the innovation of this paper. In addition, this paper put forwards the concept of elasticity of tax category and marginal taxation level.Why influence factors are such defined? It should begin with the framework of this paper. The paper contains five parts. Chapter 1 is introduction. The main body is other chapters. Chapter 2 is the measurement of tax elasticity, gives the definition and category of tax elasticity. Chapter 3 mainly analyzes which factor will affect tax elasticity. Chapter 4 conversely analyzes the effect of tax elasticity, after introducing the common effect, analyzing how tax elasticity affects investment, consumption, import and export. Chapter 5 explains how to control tax elasticity, including the means and concrete content of control.When the government controls the macro economy and society with the taxation means, not only the general condition of economy and society should be considered, but also the advantage and disadvantage of macro control. Whether the tax elasticity is more or less, high or low should become one of the criterions, only that will be more scientific.Since the middle of 1990s, there comes a saying that seems a contradiction, macro is good, but micro is bad. But we all know that tax revenue is based on the micro entity's energetic activity, if this saying is true, how tax revenue increase significantly in the case that micro entity doesn't have more benefit. The inflation since 1998 cause our country's economy depressed for nearly six years. But from 1998 to 2003, the average of tax elasticity is 1.86. Then, whether there is a proper fluctuant range to meet the need of economy's development and also long prospect? The experience data shows that tax elasticity of our country fluctuate. This is directly related to our economy's change. The economy is overheated and even inflation in 1979-1981,1985-1986,1988-1989,1993-1996,2003-2005,2006-2007, while the economy is depressed and even deflation in 1998-2002, from the end of 2008 to the middle of 2009. In order to understand the relation, empirical analysis is needed to make about the absolute amount and relative amount of tax and tax elasticity. As to research method, this paper mainly use empirical analysis, analyzing what is tax elasticity based on current document. Specifically, tax elasticity model was made by use of related data to evaluate our country's current tax elasticity, make a proper explanation and unveil the puzzle why taxation revenue increases.If tax elasticity is higher or lower than normal condition, if the bad effect is very serious, how to avoid this circumstance effectively? As to controlling means of taxation elasticity, there is mainly adaptive control and feed-forward control. Adaptive control depends on automatic stabilizer of progressive taxation system. Feed-forward control mainly depends on man-made stabilizer of non-progressive taxation system, concretely, including expansionary tax policy of artificially decreasing tax elasticity, restrictive tax policy of artificially increasing tax elasticity and neutral tax policy of maintaining desirable tax elasticity. Control will be mainly from inducing economy to scientific development. The orient and strength of control about tax elasticity should be considered from progressive tax rate, progressive tax system and taxation management such as taxation plan.At last, the paper's limitation exists in that the confidence of many model isn't very high because of lack of practical ability in positive analysis, which is a regret that I can't overcome.