Quantitative Analysis of the Relationship Between Taxation and Economic Growth

Author: Zhang Lunjun
Publisher:
Publish Date: 2006-10-01
Features: This book is a specialized economic theory research monograph on taxation and economic growth models. It covers topics such as the introduction, the basic relationship between taxation and major economic indicators like GDP, empirical research on the relationship between macro-tax burden and economic growth, structural analysis of the relationship between taxation and economic growth, and the impact of tax policies on economic growth. It is suitable for reference and study by economic theory researchers. The relationship between taxation and economic growth is a significant topic in economic research. Economics determines taxation, and taxation, in turn, influences the economy. On one hand, the scale, speed, quality, and structure of economic growth determine the total tax revenue, growth rate, and tax structure. On the other hand, as an important regulatory tool, taxation influences investment, consumption, distribution, and structural adjustments through measures such as tax rates, tax burdens, and tax incentives. It can be said that the more developed a market economy, the closer the connection between taxation and economic growth. For a long time in the past, China's tax system bore a strong color of planned economy, with tax policy primarily focused on revenue generation, resulting in weak regulatory effects on social and economic relations. The contradiction between taxation and economic growth was relatively prominent. To address this, the central government proposed: improving the macro-control system, advancing tax system reform, and fully leveraging the role of taxation in promoting economic growth. In recent years, tax authorities at all levels in China have focused on strengthening tax analysis, starting with improving the analysis methods for regular tax revenue and continuously broadening the scope of tax analysis. This has shifted from simple comparative analysis of tax progress and changes to macro-tax burden and growth elasticity, reflecting tax administration quality. In particular, the use of quantitative methods such as comparative analysis of tax and economic indicators, time series, and regression models to judge whether taxation and economic growth are coordinated has achieved significant results. At the same time, industry scholars have also shown great interest in tax analysis, with several works highlighting quantitative characteristics published and released. The theoretical research and practical application of tax quantitative analysis have shown promising progress. However, overall, due to its late start, quantitative research on the relationship between taxation and economic growth in China remains in its early stages. The relationship between taxation and economic growth is influenced by numerous random factors, exhibiting uncertainty and information asymmetry. Concepts such as tax rates, tax burdens, and tax revenue are clear in quantity and closely linked to relevant economic variables, making them suitable for research using mathematical methods such as econometric models. The author of this book has long been engaged in teaching and research on tax quantitative analysis, publishing more than 50 related papers in national core journals, hosting national social science fund projects and provincial and ministerial-level research topics, and some research findings have been recommended for decision-making reference by the National People's Congress and relevant government departments, as well as cited or referenced by nearly 100 experts and scholars. Based on years of research, this book conducts a systematic analysis of the relationship between taxation and economic growth using tax economic data. The book is divided into six chapters: Chapter 1 is the introduction, briefly introducing the basic relationship between taxation and economic growth from the perspective of fundamental economic theory, the role of taxation in macro-control, basic concepts of tax analysis, and basic methods of tax quantitative analysis. Chapter 2 focuses on the impact analysis of taxation on major economic indicators, discussing the mutual influence relationships between taxation and GDP, investment, consumption, imports and exports, and prices. It aims to study the intrinsic link between taxation and economic growth through the main factors of economic growth. Chapter 3 conducts an empirical analysis of the relationship between China's macro-tax burden and economic growth, discussing in detail the characteristics of changes in China's macro-tax burden since the reform and opening-up, as well as industrial and regional tax burdens. By comparing and learning from the tax burdens of different types of countries, it evaluates China's macro-tax burden level and proposes an estimated optimal range for it. Chapter 4 explores the intrinsic link between taxation and economic growth from a structural perspective, including the mutual influence relationships between taxation and industrial structure, regional structure, and ownership structure. Chapter 5 focuses on the impact effects of tax policies on economic growth, including the relationship between taxation and government, promoting a circular economy, and supporting the construction of a harmonious society through taxation; adjustments in tax incentive policies; and the tax multiplier and the tax multiplier effect in China. Chapter 6 discusses the forecasting and estimation of major tax types such as the value-added tax from a quantitative perspective, introducing multivariate methods such as cluster analysis, principal component analysis, factor analysis, and canonical correlation analysis, as well as the application of game theory principles in tax quantitative analysis, along with examples of their application. Emphasizing quantitative analysis is a distinctive feature of the book's writing style. For example: 1. When analyzing the relationship between taxation and indicators such as GDP, the book not only uses common regression models but also introduces ridge regression analysis to address the multicollinearity problem between indicators such as GDP and household consumption. It also uses software to screen ridge regression coefficients, solving the issue of inconsistent signs between independent variable coefficients in the tax model and their practical meaning. 2. When discussing the impact of taxation on household consumption, the book employs canonical correlation analysis, selecting a set of tax economic variables and a set of household consumption variables, known as two canonical variables. Through the study of canonical variables, it reveals the influence relationships between the two sets of variables. Undoubtedly, this provides more concentrated information and more comprehensive conclusions compared to considering only individual variables. 3. In structural relationship analysis, the author constructs a "coordination coefficient" indicator to reflect the coordination degree between industrial tax contributions and economic contributions. Definition: Industrial tax coordination coefficient. Industrial tax share / Industrial GDP share. When the coordination coefficient is significantly greater than 1 or less than 1, it indicates that tax contributions and economic contributions are not coordinated; otherwise, they are basically coordinated. Similarly, there are regional tax coordination coefficients, etc., providing a reference for objectively evaluating whether industrial and regional tax contributions are coordinated with economic growth. 4. Application of cluster analysis. Cluster analysis of regional tax burdens results in some relatively developed regions and relatively impoverished regions being grouped together, reflecting the imbalance in regional tax burdens. In fact, cluster analysis is very convenient for classifying problems involving multiple factors and indicators. Cluster analysis can also be used to test data classifications determined by other methods or combined with other methods to achieve better analytical results. 5. Principal component analysis and factor analysis can both simplify data structures, converting multiple indicators into a few comprehensive indicators. However, principal component analysis focuses on the transformation from observed variables to principal components, expressing principal components as linear combinations of original observed variables. Factor analysis focuses on the transformation from common factors and specific factors to observed variables, expressing original observed variables as linear combinations of new factors. The book provides an example of a comprehensive evaluation of regional economic development, involving 10 indicators, where two principal components can capture 93.7% of the information from the original 10 indicators. Factor analysis, through "rotation," further explains the practical meaning of the load structure. Factor scores can then be calculated to rank regions. 6. Regarding the application of game theory principles, the book provides two examples: first, a game analysis of tax inspection and tax evasion, the result: whether in static or dynamic models, curbing tax evasion hinges on the severity of penalties. Second, a game analysis of the central and local tax revenue division ratio, which is essentially a quantitative interpretation of the issue of central and local tax power division. From the discussion results, it seems that there is no perfect "game solution," reflecting a difficult problem in the current fiscal and tax system. The methods mentioned above are not innovations in this book but hold practical significance in the application of tax analysis, inspiring us to explore the feasibility of applying mathematical methods to tax analysis and advancing the quantification and scientificization of tax analysis. Of course, due to the author's limited capabilities, errors and shortcomings are inevitable, and we look forward to the readers' criticism and corrections. The book covers: introduction, the basic relationship between taxation and major economic indicators such as GDP, empirical research on the relationship between macro-tax burden and economic growth, structural analysis of the relationship between taxation and economic growth, etc.