Taxation Structure And Economic Growth

Tax has the function of regulating the economy, whether or not it is a purpose of the government of a country. Throughout the course of economic development, governments of all countries in the world use tax policy to control the economy, in order to achieve economic growth and improve their competitiveness in the world. In the past researches, more and more attention is on the effects of level of taxation and marginal tax rate on economic growth. While in recent years, the attention of the academic circles shifted to the tax structure more and more. Therefore, this paper will also research from the division of direct tax and indirect tax, and analysis their effects on the economy. Literature analysis, normative analysis and empirical analysis are used in this paper. The relationship between tax structure and economic growth is found by literature analysis. The theory that tax structure will affect economic growth is based on the summarizing of the results of previous studies. Secondly descriptive analysis is used based on the national data from 1994 to 2013 to describe the current situation of China’s tax structure and economic development. Then the data of 30 provinces from 2006-2013 are used in the empirical analysis, in order to prove the effect of tax on economic growth from the perspective of econometrics. The first model is based on theoretical model of Kneller et al.(1990). In this model, the economic growth factor s are divided into financial factors and non-financial factors, System GMM method is used based on the real data and Dynamic Panel Data Model to explore the effects of total tax, direct tax and indirect tax on economic growth. In the second part, the social security income is considered as a part of direct tax, then the GMM is done again, in the end,the results of the two models are compared.The differences from previous studies are:firstly this paper takes into account the fact that the economic growth is a dynamic process, which means growth is not only depended on the current factors, but also on the past factors, so the dynamic panel data model is constructed, year 2006-2013 provincial panel data and system GMM are used to analysis tax burden, tax structure and economic growth. Secondly, expenditure is considered in the model when the relationship between tax and economic growth is analyzed, because tax and expenditure are the two parts of the government. Lastly, this paper also takes account of the nature of social insurance, thinking of it as a kind of tax, social insurance is a kind of direct tax, then explored the effect of tax burden which includes social insurance, and then the result is compared with before to find the difference between the two models, so the difference reflects the effect of insurance indirectly, results of the researches are shown below:Firstly, if the social insurance is not concluded, the elasticity of total tax burden to economic growth rate is-0.753, indicating that the tax burden on economic growth is negative; if the total tax is divided according to the standard of direct and indirect tax, the coefficient of direct tax burden is-1.241 significantly, the coefficient of indirect tax burden is 0.387, which is not significant, indicating that the direct tax has a strong negative effect on economic growth, while the indirect tax has positive effects on economic growth, even though it is not significant.Secondly,if social security income is included, the coefficient of total tax burden is-0.127, which means the total tax burden on economic growth rate is negative, while the effects of different types of tax are different, the coefficient of direct tax burden was 0.35 now, the coefficient of indirect tax burden is 0.13, which means direct tax burden has negative effect, while indirect tax has a weak positive effect on economic growth. By comparing the model which has not considered social security income before, after taking account of the social security income, although the negative effect of direct tax burden and total tax burden is weakened a lot, in general the overall tax burden on economic growth also has a negative effect, and the direction of the effect of tax structure is not changed.According to the empirical results, we can find that, the overall tax burden hinders economic growth rate of increase, if the tax is divided of direct and indirect tax, indirect tax is better than the direct tax for economic growth, direct tax has negative effect, while indirect tax has positive effect. If the social insurance is considered in tax structure, the direction of the effect is not changed, Although the firstly purpose of social security is promoting fairness, social security also help to make the tax’s negative effect smaller, which is very surprised.