Non-Linear Effects Of Taxtion On Growth

State taxation is a key tool for macroeconomic control by government, at the same time, promoting economic growth is one of the main goals of macro-control. For a long time, taxation and economic growth are key indicators to describe the macroeconomic condition. Therefore, the relationship between taxation and economic growth has attracted many domestic and foreign scholars. According to traditional theory, it is generally believed that state tax revenue is from economic growth, on the other hand, taxation can play automatic stabilizers function and discretionary mechanisms function through the regulation of taxation elements and thereby affect the economic development.In the past, most domestic and foreign scholars study the effects of taxation on economic growth based on the linear effect of taxation. And then they make theoretical research and empirical analysis on the relationship between taxation and economic growth. However, throughout the China’s economic practices in recent years, we can find that the discretionary mechanism of taxation has not played a role in promoting the economic growth as the traditional Keynesian theory expected. In fact, there may be some nonlinear characteristics in the regulation process of tax policy. Thus from the supposition of nonlinear effects, this paper does theoretical analysis and empirical research on the nonlinear problem in the macro-control process.Therefore, based on the theory about the influence of taxation on economic growth in the different studies, this paper makes a more detailed induction on the relationship between taxation and economic growth. In this article, we combine the growth model proposed by Romer(1990) with the Lucas(1978) model of occupational choice. Furthermore, we propose a model where growth is driven by innovation.Specifically, this model is divided into two parts to compare the effects of taxation on economic growth in the different frames. One is homogeneous-ability model and the other is heterogenous-ability model. Finally, we reach a primary conclusion that there is indeed the nonlinear effects of taxation on output. Then we use MS-VAR model to examine the impact of taxation on macro-control in different regimes. Obtained through the research, the nonlinear effect of taxation on macro economic control does exist in our economic practice. And turnover tax and income tax have different effects on economic growth in different regimes.