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The Value-Added Tax Reform Puzzle

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  • Jing Cai
  • Ann Harrison

Abstract

We explore the impact of a tax reform in some provinces of China which eliminated the value-added tax on some investment goods. While the goal of the experiment was to encourage upgrading of technology, our results suggest that there was no evident increase overall in fixed investment, and employment fell significantly in the treated provinces and sectors. The reform reduced the total number of employees for all types of firms. For domestic firms, it reduced employment by almost 8%. Our results are robust to a variety of approaches, and suggest that the primary impact of the policy has been to induce labor-saving growth. This experiment has since been extended to the rest of China.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17532.

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Date of creation: Oct 2011
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Handle: RePEc:nbr:nberwo:17532

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  1. Girma, Sourafel & Görg, Holger, 2006. "Evaluating the Foreign Ownership Wage Premium Using a Difference-in-Differences Matching Approach," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5788, C.E.P.R. Discussion Papers.
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  4. Ann Harrison & Jason Scorse, 2010. "Multinationals and Anti-sweatshop Activism," American Economic Review, American Economic Association, American Economic Association, vol. 100(1), pages 247-73, March.
  5. Avraham Ebenstein & Ann Harrison & Margaret McMillan & Shannon Phillips, 2009. "Estimating the Impact of Trade and Offshoring on American Workers Using the Current Population Surveys," Discussion Papers Series, Department of Economics, Tufts University, Department of Economics, Tufts University 0742, Department of Economics, Tufts University.
  6. Eduardo M. Engel & Alvaro Bustos & Alexander Galetovic, 2004. "Could Higher Taxes Increase the Long-Run Demand for Capital?: Theory and Evidence for Chile," Yale School of Management Working Papers, Yale School of Management ysm408, Yale School of Management.
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Cited by:
  1. Wang, Dehua, 2013. "The impact of the 2009 value added tax reform on enterprise investment and employment : Empirical analysis based on Chinese tax survey data," MERIT Working Papers, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT) 059, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).

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