Research On Tax Smoothing In Optimal Tax Theory

This study explains the theory of Tax Smoothing on the basis of optimal tax theory,verify the applicability of Ricardo Equivalence theorem based on the theory of tax smoothing in China according to the tax welfare cost change index to measure the tax welfare cost change trend of China's overall and 31 provinces,municipalities and autonomous regions,and use the index to carry on the empirical study of the welfare effect of tax smoothing,and put forward the corresponding policy recommendations based on the empirical research.The empirical conclusion of study is that,first,as the economic growth rate continues to rise,the cost of the actual tax welfare cost is rising in China,which is much higher than that of tax smoothing.Second,growth rate of tax welfare cost of China's actual tax rate(non smooth tax rate)did not significantly affect the economic growth rate in some areas,implying that the impact of tax smoothing on economic growth are different in different regions.Third,tax welfare cost of China's actual tax rate(non smooth tax rate)and income distribution gap are positively related,Public expenditure and income distribution gap are negative related,improve the scale of public expenditure is conducive to narrowing the income distribution gap.The revelation of this study is that,First,Ricardian Equivalence theorem have not been verified in China and Tax Smoothing theorem may exist,the main reason is that the precondition of Ricardo Equivalence theorem does not certain exist.At the same time,there are certain sensitivity to the national tax system and government debt system.Second,Tax Smoothing theory is an ideal state in the process of economic operation,but in the actual operation of national economy,empirical studies on countries show national tax rate is not smooth,mainly due to the national economic system,the level of tax effort,the size of public expenditure,the structure of population and the system of fiscal decentralization are different in each country.Third,tax and economic growth in a non-linear relationship,different tax scale brings different economic growth rate.According to the government's economic growth target at different stages,the tax rate can be smooth in different level of smooth tax rates.Fourth,Tax Smoothing and the gap of income distribution exist certain linear relationship,implying tax smoothing involves not only the efficiency target of government,also relates to the government's equity objectives,the essence of the theory of tax smoothing is the proposition of welfare economics.The policy recommendations of this study are that,first,whether the tax system reform follows the principle of tax smoothing depends on the government's trade-off between different objectives,but also depends on the size of the government.the government should make appropriate trade-offs between the proportional tax rate and the progressive tax rate in the tax system reform.Second,when we pursue tax smoothing in the tax reform,we can not ignore the welfare effect of the government charges,for the private sector,the effects of tax or charge on the private sector decisions have no difference,the real Tax Smoothing is that tax and charge are smooth.Third,government should improve the level of public expenditure,optimize the expenditure structure,increase the proportion of transfer payments to narrow the income gap between the urban and the rural,and not simply pursue tax smoothing.Fourth,although the Ricardo Equivalence theorem is not verified in China,considering the expectations of consumer for the future and preferences of consumer,the government should effectively control the size of the debt.