FDI And China's Tax Revenue: Theory And Empirical Analysis

The improvement of the economic level of China is accompanied by the high growth of tax revenues, as well as generous inflow of foreign direct investment (FDI for short). The previous study on relationship between these two has been staying on the stimulation effects of tax allowance to the FDI all the time, ignoring the economic effects caused by tax revenue input which can be an attracting factor to FDI. Meanwhile, economic output created by FDI is also one important reason for the huge increases of tax revenue. Based on the assumption that developing countries'government input from tax revenue can bring about infrastructure perfection, education improvement and system promotion, this paper firstly theoretically analyzes the possible interaction between FDI and tax revenue under the IS-LM model and the result indicates a benign cycle formed of mutual promotion between the two. Through the diversification of economic compositions, change of industrial structure and improvement of economic profits, FDI will promote the tax revenues to raise effectively. And through increasing the input in infrastructure construction, promoting the human capital accumulation and stimulating the effective demand and consuming capacity, the growth of the tax revenues offers motive force continually for FDI's inflowing. After series analysis between FDI tax revenue's monthly data and drawing their Granger relationship, then joining variables such as GDP and average salary of the workers,etc., the thesis constructs two national panel data models to make empirical analysis of the mutual influence between FDI and tax revenue, and draws a conclusion that FDI can promote the growth of the total amount of tax revenues effectively, thus attracting more investment to flow into China. Observing samples of eastern and midwestern regions separately, can find out in eastern part of China, because of better economic basis and position advantages, FDI and tax revenues'mutual promoting effects are more obvious. However, this means larger rising space existing in increasing these both in the midwestern regions, too. So, during the process of importing foreign investment, we should pay attention to the development of our own economic level, guarantee the rational utilization of the tax revenues, in order to accelerate the improvement of the soft environment. And offer more preference policies to midwestern regions to narrow the gap between it and eastern area.