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Incomplete VAT rebates to exporters : how do they affect China's export performance?

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  • Julien Gourdon
  • Stéphanie Monjon
  • Sandra Poncet

Abstract

During the last decade, the Chinese government has frequently changed the value added tax (VAT) refund levels offered to exporters. Indeed, China's VAT system is not neutral, in particular because the exporters may not receive complete refund of the domestic VAT paid on their inputs. This paper investigates how changes in the VAT rebates affect export performance in China. Our empirical analysis relies on export volume data at the HS6 product level over the 2003-12 period. To address potential endogeneity, we exploit an eligibility rule that disqualifies processing trade with supplied materials from the rebates. We find that the adjustments to the VAT rebates have significant repercussions on the exported volume: a one percentage point increase in the VAT rebate can lead to a 7% increase in export volumes. This magnitude allows to better understand the strong resistance of China's exports amid the global recession.

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Bibliographic Info

Paper provided by CEPII research center in its series Working Papers with number 2014-05.

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Date of creation: Feb 2014
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Handle: RePEc:cii:cepidt:2014-05

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Keywords: VAT system; Export tax; Export performance; China;

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  1. Zhihong Yu & Yundan Gong & Sourafel Girma & Holger Görg, 2008. "Can production subsidies explain China's export performance? Evidence from firm level data," Kiel Working Papers 1442, Kiel Institute for the World Economy.
  2. Fabrice Defever & Alejandro Riaño, 2013. "China's Pure Exporter Subsidies," FIW Working Paper series, FIW 121, FIW.
  3. Chandra, Piyush & Long, Cheryl, 2013. "VAT rebates and export performance in China: Firm-level evidence," Journal of Public Economics, Elsevier, vol. 102(C), pages 13-22.
  4. Fisman, Raymond & Wei, Shang-Jin, 2001. "Tax Rates and Tax Evasion: Evidence from 'Missing Imports' in China," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3089, C.E.P.R. Discussion Papers.
  5. Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2009. "China's Current Account and Exchange Rate," NBER Working Papers 14673, National Bureau of Economic Research, Inc.
  6. Chen, Chien-Hsun & Mai, Chao-Cheng & Yu, Hui-Chuan, 2006. "The effect of export tax rebates on export performance: Theory and evidence from China," China Economic Review, Elsevier, vol. 17(2), pages 226-235.
  7. Kalina Manova & Zhihong Yu, 2012. "Firms and Credit Constraints along the Global Value Chain: Processing Trade in China," NBER Working Papers 18561, National Bureau of Economic Research, Inc.
  8. Paul Krugman & Martin Feldstein, 1989. "International Trade Effects of Value Added Taxation," NBER Working Papers 3163, National Bureau of Economic Research, Inc.
  9. Zheng Wang & Zhihong Yu, . "Trading Partners, Traded Products, and Firm Performances: Evidence from China’s Exporter-Importers," Discussion Papers 11/13, University of Nottingham, GEP.
  10. Upward, Richard & Wang, Zheng & Zheng, Jinghai, 2013. "Weighing China’s export basket: The domestic content and technology intensity of Chinese exports," Journal of Comparative Economics, Elsevier, vol. 41(2), pages 527-543.
  11. Peter M. Morrow & Loren Brandt, 2013. "Tariffs and the Organization of Trade in China," Working Papers tecipa-491, University of Toronto, Department of Economics.
  12. Fernandes, Ana P. & Tang, Heiwai, 2012. "Determinants of vertical integration in export processing: Theory and evidence from China," Journal of Development Economics, Elsevier, vol. 99(2), pages 396-414.
  13. repec:wyi:journl:002196 is not listed on IDEAS
  14. Lohmar, Bryan & Gale, H. Frederick, Jr., 2008. "Who Will China Feed?," Amber Waves, United States Department of Agriculture, Economic Research Service, United States Department of Agriculture, Economic Research Service, June.
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