A Cointegration Analysis of the Relationships among Tax Revenue and Macroeconomic Factors in China∗

Using macroeconomic factors to forecast tax revenue is an important means of tax revenue forecasting, and it is also a challenging issue in China to which State Administration of Taxation pays close attention. As a prerequisite, the relationships among tax revenue and certain macroeconomic factors should be examined. In this paper, interactions among tax revenue, GDP, price level, and external trade in China are investigated. With the benefit of cointegration analysis, the long-run equilibrium conditions among tax revenue and these macroeconomic factors are proposed. Based on these cointegrating relations, a vector error correction (VEC) model is then estimated. The results show both long-run and short-run relationships among total tax revenue, GDP, price level, and external trade in China, which could help to promote further studies concerning tax revenue analysis and forecasting using macroeconomic factors.