The incentive effects of the macro tax burden on economic growth: A negative or positive incentive effect? Analysis based on panel data

Abstract

Utilizing macroeconomic panel data from 2010 to 2022 of 31 provinces in China, this paper employed the fixed effect model, the random effect mode, the robust test method, the system GMM estimation method, the instrumental variables method (IV), and subregional heterogeneity analysis to conduct an empirical investigation into the effect of China's small-caliber macro tax burden, large-caliber macro tax burden and the burden of various major taxes and fees on economic growth. The research revealed that the small-caliber macro tax burden exerts a positive incentive effect on economic growth, while the large-caliber macro tax burden acts in the opposite way. The tax burden of VAT and CIT is relatively moderate, which can stimulate a positive incentive effect on economic growth. However, the tax burden of total nontax income and individual income tax is too heavy and overburdens negatively economic growth. Moreover, this paper reveals regional heterogeneity in the effects of China's small-caliber and large-caliber macro tax burdens and the burden of major taxes and fees on economic growth. Drawing from the findings of this study and considering the specific context of China, this paper offers several policy recommendations for optimizing China's tax system.