Research On The Correlation Between China’s Foreign Direct Investment And Tax Revenues

As revenues influence foreign direct investment(FDI) increasingly, ourgovernment has implemented many tax policies such as giving foreign capitalenterprise tax preference and has been using the tax income to effect on each aspect ofeconomy, science, education, medical and health to improve the investmentenvironment of our country so as to attract FDI. These means have reachedconsiderable achievements, and economic output which FDI have created have alsogreatly enriched the tax income in our country.Different from most of the previous scholars’ study which always focused onwhether or how preferential tax effect FDI, this paper mainly study mutual effectbetween FDI and revenue.Concrete steps are like this: firstly, we introduce the background andsignificance,current research,the development and current situation of tax and FDIbriefly. Then, we use Cobb-Douglas production function to establish four quadrantlinkage chart to analyze their mutual dynamic mechanism and analyze the interactionway. Thirdly, we construct time series model and panel model to test these theoryrespectively.Time series model bases on the1983-2011data for sample. Through theco-integration analysis and error correction model, and Granger causality test, timeseries model finds that there is a co-integration relationship between FDI and therevenue, in the long term, they are dynamic equilibrium. In the short time, FDI is thegranger reason of tax and tax is also the granger reason of FDI. Panel model bases onthe2001-2010data of30provinces for sample. We establish eastern, central andwestern panels to analyze the diversity of the relationship of tax and FDI in differentregions. Panel models find that their promotion are different in different areas. In eacharea the promoting function which revenue effect on FDI are larger. The promotion ofFDI is the largest in the eastern region,the promotion of tax is the largest in the westregion and the mutual effect is the weakest in the central region.Finally, we combinewith the reality to analyze the reasons and put forward relevant Suggestions.