Research On The Correlation Between Economy Growth And Tax Revenue Of Hebei Province

Generally, the maximization of tax revenue is incompatible with the maximization ofGross Domestic Product (GDP). The increasing tax revenue will decrease the economygrowth, which has been adequately proved by the tax multiplier effect theory. But this theoryis invalid in Hebei Province.In recent years, tax revenue and GDP of Hebei province have shown a strong momentumof double growth. In2012, Hebei has achieved2.6575trillion yuan in GDP by10.07%year-on-year. Tax revenue has been about156.1billion yuan by15.71%year-on-year. Since2004, growth rate of tax has been greater than GDP’s, which is contrary with the taxmultiplier effect theory. Are there some problems in tax revenue and GDP or transmissionmechanism of them? How to explain this phenomenon by the tax multiplier effect theory?Does the traditional tax multiplier explain the relationship between tax and GDP accurately?Is the transmission mechanism of impact of tax revenue on economic growth scientific toensure the tax multiplier effect to play its role? Thus, this article researches the correlationbetween economy growth and tax revenue of Hebei province by theoretical and empiricalanalyses.Firstly, from the point of theory we analyze the impact of tax revenue on economicgrowth and regard the tax multiplier effect theory as a starting point of research. Secondly,through comprehensive statistical description, we show each factor of the tax multiplier effectin Hebei Province, such as growth of GDP, tax system, consumption, etc. On this basis, weimprove the traditional tax multiplier and compare3different tax multipliers. Especially,depending on the general equilibrium model of economic growth, we explain the transmissionmechanism of impact of tax revenue on GDP and find some problems which disturb the taxmultiplier effect. Fourthly, establishing a multiple linear regression&prediction model andimplement the Granger causality test by the data of Hebei province in1990–2012, we findthat economic growth will increase tax revenue which creates the double growth. On the otherhand,1%increasing rate of tax revenue will reduce0.0002%increasing rate of GDP and the tax multiplier effect of Hebei province is difficult to play its role. Negative effects ofexcessive tax growth on the economic growth cannot be reflected adequately. Moreover, theincreasing consumer price level conceals the decline of actual consumption that growth of taxrevenue causes, thus creating the virtual growth of GDP which is calculated in the form ofcurrent price. It obviously shows the proportion of non-tax revenue and extra income is toohigh, disposable income and consumer spending levels are low and contribution ofconsumption to economic growth is insufficient. Finally, for optimizing the current taxstructure, we propose some workable suggestion, such as improving structural tax cuts,perfecting transfer payments system and reforming fees to tax.