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Tax avoidance through re-imports: The case of redundant trade

  • Liu, Xuepeng

Many countries have participated in re-imports, a type of round-trip trade originating from a country and back to the same country. China, as the largest re-importer, has imported more from itself than from the U.S. since 2005. As the first empirical study on re-imports, this paper shows that China's re-imports are at least partially driven by the imperfection of the value-added tax (VAT) rebate policy for processing trade. In principle, firms should be able to claim input VAT credits after selling their finished products in China, or receive input VAT rebates after exporting their products. Some processing firms, however, are not qualified for the credits or rebates when selling in China; hence, they may export their products to obtain rebates. Some downstream processing firms can benefit from re-importing these products duty-free as inputs because they cannot obtain the rebates when buying inputs in China even after exporting their final goods.

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Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 104 (2013)
Issue (Month): C ()
Pages: 152-164

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Handle: RePEc:eee:deveco:v:104:y:2013:i:c:p:152-164
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  1. Kei-Mu Yi, 2010. "Can Multistage Production Explain the Home Bias in Trade?," American Economic Review, American Economic Association, vol. 100(1), pages 364-93, March.
  2. Fisman, Raymond & Wei, Shang-Jin, 2001. "Tax Rates and Tax Evasion: Evidence from 'Missing Imports' in China," CEPR Discussion Papers 3089, C.E.P.R. Discussion Papers.
  3. Koopman, Robert & Wang, Zhi & Wei, Shang-Jin, 2012. "Estimating domestic content in exports when processing trade is pervasive," Journal of Development Economics, Elsevier, vol. 99(1), pages 178-189.
  4. Ferrantino, Michael J. & Liu, Xuepeng & Wang, Zhi, 2012. "Evasion behaviors of exporters and importers: Evidence from the U.S.–China trade data discrepancy," Journal of International Economics, Elsevier, vol. 86(1), pages 141-157.
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