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The employment effects of VAT rebate efficiency: Evidence from SMEs in China

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Listed:
  • Lu, Bing
  • Ma, Hong
  • Hu, Jiashu
  • Xu, Yuan

Abstract

Small and medium-sized enterprises (SMEs) are pivotal for job creation in China. This study investigates whether improving the efficiency of Value-Added Tax (VAT) rebates can promote employment in SMEs. Using firm-level data from the National Tax Survey and Chinese Customs, we find that reducing VAT rebate delays significantly increases SME employment, both on the intensive margin—by expanding employment within existing firms—and on the extensive margin—by reducing the probability of exit from export markets. Furthermore, SMEs that face greater financial constraints exhibit heightened sensitivity to VAT rebate delays. Our findings highlight the importance of streamlining VAT rebate processes, particularly for financially constrained firms, to boost employment.

Suggested Citation

  • Lu, Bing & Ma, Hong & Hu, Jiashu & Xu, Yuan, 2025. "The employment effects of VAT rebate efficiency: Evidence from SMEs in China," China Economic Review, Elsevier, vol. 94(PB).
    • Handle: RePEc:eee:chieco:v:94:y:2025:i:pb:s1043951x25002196
    DOI: 10.1016/j.chieco.2025.102561
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    Keywords

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    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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