Research On Tax Policies To Deepen Trade Openness

In the late 20^th century,many developing countries adopted the opening-up or trade liberalization policy to increase their trade and economic.It led international trade to be a new driving power of worldwide economic growth.A country’s trade policy is an important factor to its economic development.With the national level of economic cooperation greatly enhanced,globalization is a long-term trend and consensu in global governance as well as free trade and against protectionism.Trade openness is an eternal topic in trade practice.The existence of market failure needs for government intervention.Tax policy especially international trade tax plays a vital role to boost trade.Entering the 21^st century,a weakening economy prevails in the world.Renewed slowdown seen in China trade data.Under this circumstance,China continues to deepen trade openness which stems from the need of openness to entering a new era and of trend in economic globalization.There are three instruments a country could use in the international trade game which are tariff,non-tariff barriers and export subsidies.This dissertation studies the effect of tax policy on international trade by the newest GTAP database and finds that the effect of tariff is the least to influent trade.However,trade openness will have an adverse effect.For example,it makes a country more vulnerable by other countries.It raises the external risk which augments the instability of economic and public revenue.Meanwhile,it brings some potential hazards to environment and competition.Those disadvantages will delay trade openness.If government do not provide incentive policy to some infant industries,they would be crushed by foreign mature industries due to its weakness.To consider those in this dissertation,we select revenue as a variable to conduct an empirical analysis.Then we will align other policy with tax policy to reduce the inactive from trade openness in the last part of this dissertation.Furthermore,it seems powerless to adjust single policy tool and objective in the complicated and changeable international economic situation.China as an economic big power would better consider macroeconomic regulation and control measures when formulating tax policy to deepen trade openness.Combined single micro-policy objective with macroeconomic means will have a more significant for China itself and for the wider world to development.Therefore,this dissertation also studies expenditure policy and trade policy to fill in gaps of tax policy adjustment to deepen trade openness.This dissertation is made up of nine chapters.Chapter 1 is introduction,which states the background,purposes and research ideas and methods,the literature review,as well as the innovation points of the text.In chapter 2,we review tax policy choice in different trade theory including classical theory of international trade,trade protectionism and new trade theory.Then,the quantitative analysis states how tax policy affect international trade.On the one hand,tax is included in the factor price which would consist of product cost.It forms the comparative advantage among commodities in different countries and then impact the international trade.On the other,tax will affect relative price of exports and imports and finally produce an effect on trade openness.In contrast,trade openness will have an impact on the public revenue.This would create a bad impression to the rate of descent of tax policy to deepen trade openness.Chapter 3 is a review of Chinese policies on tax and trade since 1978.After reform and opening,China embraced the trade openness and reduced import tariff.Although the average rate is slightly higher than those in developed countries,China has always been a staunch supporter of free trade.Deepening openness is in line with globalization.Decades practice of world economic development proves that openness is the driving power of development.While as an important means of the state to adjust market regulation,Chinese tax policy has some deficiencies in the complex and volatile international economic.The 4th to 5th chapter is the core empirical parts of this dissertation.Chapter 4 makes empirical analysis about the effect of tax policy on international trade.Tax policy will affect the development of trade by price,which in turn affect the process of trade openness and ultimately make a difference in trade liberalization.In this dissertation,we focus on three tax tools including import tariff,export subsidies and income tax.We conduct a simulation analysis by using GTAP9 database to investigate the effects of tax policy on international trade.In short,we find that those three tax categories policy would affect our economic and trade by varying degrees.Chapter 5 explores the constraints that stunt the adjustment range of tax on deepening trade openness.The decrease of tax rate will promote economic and trade.However,financial budget limit the rate of descent.The drop of tariff is one way to open trade.Trade openness in turn will affect tax revenue,especially in those developing countries depend on trade tax revenue heavily.It would have negative impact on the process of trade liberalization.What is more,as the degree of openness deepens,it will affect labor market,income distribution and domestic industry.Those in turn will restrict trade openness.In this chapter,we take tax revenue as an example to conduct an empirical study by building fix effect and GMM model.We find that in the initial stage of trade open tax revenue could be ignored,but in the later period it should be taken more seriously which would slow down the process of trade liberalization.Chapter 6 is the policy review and quantitative analysis of foreign country’s trade liberalization process to dram lessons from those experience to perfect current tax policy in China.This chapter selects several countries to analysis their tax policy in trade openness.We choose United States as the developed countries representative of trade liberalization to study the process of tax policy reform and its impact on trade and revenue.In addition,we take Thailand,India and Ghana for example as their development mode and economic system close to China.Thailand and Ghana had fiscal surplus after the early stage of trade liberalization.On the contrary,India suffered budget deficit which government had to suspend trade liberalization as a result.When the situation was alleviated,India reactivate free trade.This dissertation generalizes those practical experience to make a reference for our tax policy on deepening trade openness.In chapter 7,we combine other macroeconomic policies to join the tax reform,which consists of expenditure policy,trade policy and non-tariff barriers.Thus,there are three parts in this chapter.First part takes expenditure policy into consideration.Trade openness will affect tax revenue as well as government expenditure.On one hand,expenditure subjects to financial budget.On the other hand,the adverse impacts of deepening trade openness demand the regulation of expenditure policy.Second part combines trade policy.In the past,each country may choose different trade policy such as free trade,import liberalization,import substitution,export-oriented.The change of trade policy will be considered in the tax reform.The interests of all parties may different which leads to support and oppose those two political camps.Last part integrates non-tariff barriers（NTBs）with tax policy.After the financial crisis in 2008,global economic situation continues to be uncertain.Many countries take some trade protection methods to protect domestic industries.In those methods non-tariff barriers are widely used because of its natural concealment.Though empirical analysis it is found that inhibition of NTBs on trade is obviously higher than tariff.We suggest that the adjustment of tax policy on deepening trade openness could combine NTBs to achieve a better result.Chapter 8 summarizes this dissertation,which consists of the main conclusions,policy implications in trade tax,income tax,export subsidy,financial expenditure,non-tariff barriers.After theoretical and empirical analysis,the major results can be concluded as follows:（1）The adjustment of different kind of tax may have different effect on international trade.The lower of tariff would increase imports and exports,while the drop of export subsidies have opposite results and the situation is even worse.Briefly,the effect of export subsidies and income tax policy will larger than import tariff.Probably because the decrease space of tariff is quite low,the impact to industries would be relatively small after government further lowered tariffs.（2）Trade openness will affect tax revenue which limits the adjustment range of tax rate.For one thing,the result to international trade tax revenue is uncertain as the deepen of trade openness.From the results of foreign trade dependence index of trade openness,it is found that trade openness and trade tax revenue have negative correlation.While the results of average tariff index of trade openness show that those two factors have no significantly effect.For another,from the results of group empirical analysis it is found that trade openness has slight effect on tax revenue in low income developing countries,positive effect in middle income developing countries,yet negative effect in high income developing countries.（3）By combining expenditure policy and non-tariff barriers,it will maximize the benefit of deepen trade openness.By building simultaneous equations and estimated with 3SLS,we find that trade openness and fiscal expenditure have U-shaped relationship.In the early stage of trade openness there are many indetermination factors.According to compensation hypothesis,government could increase expenditure to minimize the negative effect and risk from openness.As the trade open deepening,government could decrease expenditure moderately.Moreover,the design and implement of tax policy should take trade policy and non-tariff barriers into consideration.Because that inhibition of NTBs on trade is quite higher than tariff,government should improve trade facilitation and reduce non-tariff barriers,improve relevant regulations to in line with international standards.（4）During the process of trade liberalization,government should strength the administration of fiscal budget and avoid a serious fiscal deficit.Tax reform in foreign countries to deepen trade openness is mainly based on income tax and supplemented by indirect tax.In some countries the process of trade liberalization would be blocked by the loss of trade tax revenue because of lower tariff rate.In case to avoid this,a country will carry on tax system reform to ensure tax revenue that transfers the rely on trade tax to domestic tax.For example,tax reform in the United States,Ghana and Thailand used income tax being primary and indirect tax being auxiliary including reduce marginal income tax rates or raise pre-tax income deductions and expand the scope of indirect taxation.The main innovations of this dissertation are as follows:Firstly,this dissertation tries to analysis the effect of different kinds of tax policy on international trade by using the newest GTAP database.Many previous researches focus on singular tax.This dissertation attempts to weight in tariff,export subsidy and income tax.It is found out that tariff has less powerful than other two tax in deepening trade openness.Secondly,we find that the relationship between trade open and tax revenue is nonlinear.In various stages of economic development,the impact of trade openness on tax revenue is different.At the early stage the relationship is a better positive correlation.While at the later period,they show negative correlation.The results make up for the faults of former research.Thirdly,we based on a new research perspective for tax policy analysis which is the strengths and weaknesses effect of trade open to domeistic economic.Therefore,we take other macroeconomic measures into consideration in order to minimize the negative impact from trade liberalization.This dissertation analysis tax policy mixed with government expenditure and non-tariff barriers to lower the cost of trade openness.Our research will enrich the theoretical research in relevant area.Fourthly,we find that the relationship of trade openness and government expenditure is not conform either to the compensation hypothesis or efficiency hypothesis.Yet it fits for the U-shape line which our result offers evidence to a small amount of research about U-shape hypothesis.