Taxation and economic performance: Evidence from China

This paper empirically tests the effects of taxation on economic performance using prefectural level city and county data from China. Results based on cross-sectional data from over 200 prefectural cities in 2007 indicate that overall tax burden and tax structure affect economic performance. Specifically, tax burden has a negative correlation with economic activities. Empirical results from the analysis of disaggregated local data for over 2,000 counties in China also support the hypothesis that distortionary taxation lowers the economic activities. These findings provide empirical evidence from China on a negative relationship of the total tax burden with economic activities.