The Validity Analysis Of Laffer Curve

In the past two decades,the corporate income tax rate in the world has shown a clear downward tendency.At the same time,however,without putting too much weight on the impact of economic crises and the improvement of the economic volume,we have beheld that the relative amount of corporate income tax in the world is rising,and the TAX/GDP ratio in the data has exhibited a clear upward trend;in the context of the overall declining tax rate,we are not able to bring up a reasonable explanation with common sense.This paper attempts to employ the theory of Laffer curve to solve this problem;we tend to find empirically that the Laffer effect is existence and significant in the corporate tax content.In this paper,I collect data from 36 major countries in the world from 1996 to 2016;My focus is the scope of corporate income tax;I analyzed the establishment and existence of the Laffer curve,and finally obtained the optimal value of the corporate income tax rate implied by Laffer theory.In the first part of paper,I reviewed the literature,and gave a detailed description of the Laffer theory.In the second part,I started by introducing the historical development of enterprise income tax and its trend;I then use the theory of Laffer curve to interpret this observed development.In the empirical part of this paper,I conduct panel regression analysis,and I validate my result by looking into the time serial nature of the data.I also divide my data into different groups to validate my result.Specifically,I consider the following classifications:developed countries,the developing countries,the BRIC countries.I find that my empirical model appears to be a good fit to the current situation of Chinese corporate income tax policy.The main conclusions of this paper are as follows.Firstly,the estimated coefficients of our panel data are in line with our expectation,and the Laffer curve of the corporate income tax is of a shape of inverted U,which proves the existence of the Laffer effect in the current context;The implied optimal tax rate is about 35%.Secondly,when we divide our whole dataset into two sub-samples of developed and developing countries,my result still holds,however,the calculated optimal tax rate for the developing countries is lower than that of the developed countries.Thirdly,before 2008,China's corporate income tax is higher than the estimated optimal tax rate in developing countries,so the tax rate adjustment was in line with the Laffer theory;this observation is also in line with the fact that from 2008 onwards(after the tax rate is lowered),the relative amount of the enterprise income tax is steadily increasing.I believe that,taking into account of the potential of future economic development of China,the Chinese corporate income tax rate can be slightly raised,but in the period of economic recession,it is necessary to introduce measures other than the tax rate reform to neutralize extra disturbance.