Direct Taxation, Indirect Taxation and Macro Tax Burden:Theory and Evidence from China’s Provincial Panel Data
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| Title | Direct Taxation, Indirect Taxation and Macro Tax Burden:Theory and Evidence from China’s Provincial Panel Data
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| Author | Fang Wenquan |
| Organization | Business School, University of Shanghai for Science and Technology |
| Email | fangwenquan@gmail.com |
| Key Words | Direct Tax; Indirect Tax; Tax Structure; Optimal Taxation |
| Abstract | This paper constructs an ad hoc model involving both direct taxation and indirect taxation to describe macro tax burden based on the optimal taxation theory. The nonlinear aggregate tax function shows that, the first, there are mix effect and imperfect substitution effect between direct and indirect tax; secondly, given a lump sum tax, the average marginal tax rate of aggregate taxation on both commodity and income can either increase or decrease; and thirdly, the Laffer tax curve may be right for the aspect of mixing both direct and indirect tax in a second-good utilitarian taxation scheme. Then China’s provincial panel data are tested to prove evidences that the gross tax revenue is significantly positive to the direct tax, and negatively to the direct-indirect tax structure but insignificant particularly in developed regions, from the tax-sharing reform in 1994 and then on. That implies that China’s current taxation system still unable to play the marginal substitution effect between direct and indirect taxation, and may cause potential and severe distortion of public financial resource. |
| Serial Number | WP584 |
| Time | 2014-01-14 |
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