An Econometric Study On The Effect Of Tax On The Corporation's Investment In China

The research on effect of tax on the corporation's investment is to be classified to the study on the economic efficiency of tax. It is of great theoretical and practical significance because this study links capital, which is the crucial factor of economic growth, and tax policy, the important lever to macro-economy regulation together. For a long time, the study of this field has been one of the hot issues in the theory of public economics. However, in China the study on the effect of tax on the corporation's investment is still in the primary stage. This thesis therefore is intended to fill this blank, and examine the effect of corporate income tax and VAT on the corporation's investment in China.Based on the results of foreign theoretical research, this thesis firstly builds an empirical model which includes the variable of tax and investment, and gives the algebraic expression of the user cost. Next, we analyze the factors that influence the investment of three types of Enterprises in China, then we calculate the user cost and use Chinese provincial panel data and industrial cross- sectional data to examine the effect of tax on the investment. Finally, from the conclusions of the econometric analysis, we estimate the effect of consolidation of the two taxes on the investment in China, and advance some suggestions to improve the system of tax preference and the reform of VAT.The main conclusions of this thesis include:1. Tax, including corporate income tax rate, depreciation, investment credit, and VAT rate, will influence the corporation's investment by influencing the user cost. The raise of corporate income tax rate will make user cost ascend, when the sum of depreciation rate and investment credit rate is less than 1. On the contrary, when the sum of is larger than 1, user cost will descend. However, in any case, the user cost goes up as the depreciation rate, investment credit rate and VAT rate increase. Additionally, using accelerated depreciation is the best way to encourage the investment, and rising tax rate is the worst means. 2. For the state-owned enterprises, a negative correlation is found between user cost and investment, and the elastic coefficient of user cost is -0.827. The fiscal expenditure of local government and the inter-provincial competition have strongly positive influence to the investment, which show that government still has the power of control the state-owned enterprises. And the results also show that the soft budget constraint of state-owned enterprises does not have significantly influence on investment, which seems that the relationship between the state-owned banks and the state-owned enters recently is going strict.3. The results of the study on the foreign-invested enterprises show that the factor of user cost has the significant negative influence on the level of investment in all regions, however the elastic coefficient of user cost to the investment with the nationwide sample is -0.77, which is lower than state-owned enterprise. In addition, in term of comparison between the east and west, the coefficient of the east-area sample is -0.69, however, its -2.15 for west-area, so that it's obviously that the tax incentive policy a key role on the investment in the west-area. The research from industrial sectors shows that, user cost has not much influence on the investment from foreign invested firms, however the capital denseness and market demand do have. Lastly, the industry-admittance regulation is also not a significant factor which influences the investment of foreign invested enterprises.4. The conclusions of the regression on private enterprises are as following. Firstly, the user cost has more powerful effect on investment in private enterprises, and the elastic coefficient is -3.50, which shows that private enterprises must face to higher tax and financing cost. Secondly, the industry-admittance regulation influences the investment significantly, which shows private enterprises in China are treated unfairly somehow. Thirdly, the negative correlation between enterprise scale and the investment shows it is possible for private enterprises to reduce the user cost by some self-protected methods.