The Research On The Effect Of Tax On Economic Growth

Marsden, the economist of the World Bank, who studied the effects of tax on the growth rate of economy through choose the experienced data of twenty comparable countries, and then concluded the basic principals of the relation between the tax and economic growth. Through encouraged the supply of factors, the lower tax would stimulate the economy and provide assistance to government finance, finally it will increase economic efficiency. The economy of China advanced at high speed of over average 9 per a year since 1990s.Tax revenue accumulated funds for public finance, and then became one of the effective tool to prevent the economy from severely fluctuating.It is important that analyse the mechanism of taxation in depth to study long-term equilibrium between economic growth and taxation in China.Followed by the opinion of supply-side economist, this paper established a theoretical frame in order to explore the relation between taxation and economic growth. Accordingly we can explain that how the taxation influenced economic growth.Taxation has the significant effect on individuals and entrepreneurs. It reduced the disposable income and changed the relative price in the market.There is the effect on the optimal activities of economic man and the supply of capital and labor. Eventually economic growth will be affected. First, in the light of the supply side in economic growth, this paper analyzed the influence of taxation on the factors which are necessities in economic growth, then explored the influence to time inconsistency brought by the purpose of government and the profit of economic man by virtue of the concept of game. Next, it studied the role of taxation in the economy of China, and established the entropy as evaluation of taxation. As a important component part of financial policy, taxation plays a big role in economic growth.Finally, it concluded that the concrete relationship between the supply of the necessary factors and effective tax rates in the way of the multivariate regression, and the practical influence of taxation which is the simultaneous effects of income effect and substitution effect on the supplies of capital and labor. Having built on past achievements, it investigated a stable relationship between the variables over a long period of time by establishing a VAR model and obtained the significance of different taxation impulse through variance decomposition. So we could explain some problems which have arisen in the economy of China. In view of negative effect of tax on economic growth and the function of regulate and control economic running, we can combine tax reduction in...