IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v16y2024i11p4748-d1407542.html
   My bibliography  Save this article

Does Tax Sharing Matter for Export Quality Upgrading? Evidence from China

Author

Listed:
  • Kunpeng Zhang

    (School of Software, Henan University, Kaifeng 475004, China)

  • Yibei Guo

    (International Business School, Henan University, Kaifeng 475004, China)

  • Xiaotian Hu

    (School of Economics, Beijing Technology and Business University, Beijing 100048, China)

Abstract

Tax policy is critical for business operations and export decisions. However, the relationship between tax sharing and export has been less frequently discussed. This paper explicitly examines the underexplored tax-sharing system’s effect on manufacturing exporters’ export quality and develops four hypotheses. We use data on Chinese manufacturing exporters and prefecture-level tax-sharing from 2008 to 2013 and employ an instrumental variable approach to alleviate the endogeneity problem. The empirical evidence supports our hypotheses. We find that an increase in the prefecture-level government tax-sharing ratio significantly reduces export product quality of firms. This quality effect can occur through channels, including tax burden effect, production scale effect, and innovation effect. Moreover, more productive firms and those operated in cities with stronger intellectual property protection can face a smaller quality-reducing effect. Our findings offer policy implications for improving China’s modernized tax system and trade upgrading. Policymakers should recalibrate the tax-sharing system to reduce the tax burden on manufacturing exporters, particularly for innovative and high-productivity firms, and bolster intellectual property rights to enhance export quality and support China’s trade and economic modernization.

Suggested Citation

  • Kunpeng Zhang & Yibei Guo & Xiaotian Hu, 2024. "Does Tax Sharing Matter for Export Quality Upgrading? Evidence from China," Sustainability, MDPI, vol. 16(11), pages 1-20, June.
  • Handle: RePEc:gam:jsusta:v:16:y:2024:i:11:p:4748-:d:1407542
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/16/11/4748/pdf
    Download Restriction: no

    File URL: https://www.mdpi.com/2071-1050/16/11/4748/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Han, Li & Kung, James Kai-Sing, 2015. "Fiscal incentives and policy choices of local governments: Evidence from China," Journal of Development Economics, Elsevier, vol. 116(C), pages 89-104.
    2. J. Kornai & E. Maskin & G. Roland, 2004. "Understanding the Soft Budget Constraint," Voprosy Ekonomiki, NP Voprosy Ekonomiki, issue 11.
    3. Andrew Atkeson & Ariel Tomás Burstein, 2010. "Innovation, Firm Dynamics, and International Trade," Journal of Political Economy, University of Chicago Press, vol. 118(3), pages 433-484, June.
    4. Gene H. Chang & Ye Chen & Kathryn J. Chang, 2024. "Effective VAT Rates, Tax Efficiency and Burden: Are Some Industries over-Taxed in China?," Chinese Economy, Taylor & Francis Journals, vol. 57(1), pages 1-17, January.
    5. Liansheng Wu & Yaping Wang & Wei Luo & Paul Gillis, 2012. "State ownership, tax status and size effect of effective tax rate in China," Accounting and Business Research, Taylor & Francis Journals, vol. 42(2), pages 97-114, June.
    6. David Hummels & Alexandre Skiba, 2004. "Shipping the Good Apples Out? An Empirical Confirmation of the Alchian-Allen Conjecture," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1384-1402, December.
    7. Chirinko, Robert S. & Wilson, Daniel J., 2017. "Tax competition among U.S. states: Racing to the bottom or riding on a seesaw?," Journal of Public Economics, Elsevier, vol. 155(C), pages 147-163.
    8. Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-328, March.
    9. Ricardo Hausmann & Jason Hwang & Dani Rodrik, 2007. "What you export matters," Journal of Economic Growth, Springer, vol. 12(1), pages 1-25, March.
    10. Dongmin Kong & Mengxu Xiong, 2021. "Unintended consequences of tax incentives on export product quality: Evidence from a natural experiment in China," Review of International Economics, Wiley Blackwell, vol. 29(4), pages 802-837, September.
    11. Bronwyn H. Hall & Adam Jaffe & Manuel Trajtenberg, 2005. "Market Value and Patent Citations," RAND Journal of Economics, The RAND Corporation, vol. 36(1), pages 16-38, Spring.
    12. Maskus, Keith E. & Penubarti, Mohan, 1995. "How trade-related are intellectual property rights?," Journal of International Economics, Elsevier, vol. 39(3-4), pages 227-248, November.
    13. Justin Yifu Lin & Zhiqiang Liu, 2000. "Fiscal Decentralization and Economic Growth in China," Economic Development and Cultural Change, University of Chicago Press, vol. 49(1), pages 1-21.
    14. Amit K. Khandelwal & Peter K. Schott & Shang-Jin Wei, 2013. "Trade Liberalization and Embedded Institutional Reform: Evidence from Chinese Exporters," American Economic Review, American Economic Association, vol. 103(6), pages 2169-2195, October.
    15. Chen, Jin & Li, Dan & Liang, Jingjing & Sun, Churen, 2023. "Does corporate income tax reduction prompt firm export concentration?," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 894-909.
    16. Jin, Hehui & Qian, Yingyi & Weingast, Barry R., 2005. "Regional decentralization and fiscal incentives: Federalism, Chinese style," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1719-1742, September.
    17. Wang, Jingwen & Shen, Guangjun & Tang, Dunzhe, 2021. "Does tax deduction relax financing constraints? Evidence from China's value-added tax reform," China Economic Review, Elsevier, vol. 67(C).
    18. Shujin Zhu & Renyu Li, 2017. "Economic complexity, human capital and economic growth: empirical research based on cross-country panel data," Applied Economics, Taylor & Francis Journals, vol. 49(38), pages 3815-3828, August.
    19. Fang, Hongsheng & Su, Yunqing & Lu, Weijun, 2022. "Tax incentive and corporate financial performance: Evidence from income tax revenue sharing reform in China," Journal of Asian Economics, Elsevier, vol. 81(C).
    20. Lv, Bingyang & Liu, Yongzheng & Li, Yan, 2020. "Fiscal incentives, competition, and investment in China," China Economic Review, Elsevier, vol. 59(C).
    21. Wiser, Ryan & Bolinger, Mark & Barbose, Galen, 2007. "Using the Federal Production Tax Credit to Build a Durable Market for Wind Power in the United States," The Electricity Journal, Elsevier, vol. 20(9), pages 77-88, November.
    22. Tian, Binbin & Yu, Baixue & Chen, Shi & Ye, Jingjing, 2020. "Tax incentive, R&D investment and firm innovation: Evidence from China," Journal of Asian Economics, Elsevier, vol. 71(C).
    23. Emanuele Brancati & Raffaele Brancati & Dario Guarascio & Antonello Zanfei, 2022. "Innovation drivers of external competitiveness in the great recession," Small Business Economics, Springer, vol. 58(3), pages 1497-1516, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Latzer, Hélène & Mayneris, Florian, 2021. "Average income, income inequality and export unit values," Journal of Economic Behavior & Organization, Elsevier, vol. 185(C), pages 625-646.
    2. Curzi, Daniele & Pacca, Lucia, 2015. "Price, quality and trade costs in the food sector," Food Policy, Elsevier, vol. 55(C), pages 147-158.
    3. Hu, Xiaotian & Yin, Xiaopeng, 2022. "Do stronger intellectual property rights protections raise productivity within the context of trade liberalization? Evidence from China," Economic Modelling, Elsevier, vol. 110(C).
    4. Naima Chrid & Sami Saafi & Mohamed Chakroun, 2021. "Export Upgrading and Economic Growth: a Panel Cointegration and Causality Analysis," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 12(2), pages 811-841, June.
    5. Gideon Ndubuisi & Solomon Owusu, 2021. "How important is GVC participation to export upgrading?," The World Economy, Wiley Blackwell, vol. 44(10), pages 2887-2908, October.
    6. Vu, Trung V., 2020. "Economic complexity and health outcomes: A global perspective," Social Science & Medicine, Elsevier, vol. 265(C).
    7. Hermann Ndoya & Bruno Emmanuel Ongo Nkoa & Francis Hypolite Kemeze & Tii N. Nchofoung, 2024. "Financial development and economic complexity: The role of country stability," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 32(2), pages 415-447, April.
    8. Huiying Zhang & Xiaohui Yang, 2016. "Intellectual Property Rights and Export Sophistication," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 7(03), pages 1-19, October.
    9. Jie Cai & Nan Li & Ana Maria Santacreu, 2022. "Knowledge Diffusion, Trade, and Innovation across Countries and Sectors," American Economic Journal: Macroeconomics, American Economic Association, vol. 14(1), pages 104-145, January.
    10. Qichun He & Meng Sun, 2018. "Does Fiscal Decentralization Increase the Investment Rate? Evidence from Chinese Panel Data," Annals of Economics and Finance, Society for AEF, vol. 19(1), pages 75-101, May.
    11. Cheng, Yudan & Jia, Shanghui & Meng, Huan, 2022. "Fiscal policy choices of local governments in China: Land finance or local government debt?," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 294-308.
    12. Cong S. Pham & Mehmet Ali Ulubaşoğlu, 2016. "The role of endowments, technology and size in international trade: new evidence from product-level data," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 25(7), pages 913-937, October.
    13. Lawrence Edwards & Robert Z. Lawrence, 2014. "AGOA Rules: The Intended and Unintended Consequences of Special Fabric Provisions," NBER Chapters, in: African Successes, Volume III: Modernization and Development, pages 343-393, National Bureau of Economic Research, Inc.
    14. Beata S. Javorcik & Alessia Lo Turco & Daniela Maggioni, 2018. "New and Improved: Does FDI Boost Production Complexity in Host Countries?," Economic Journal, Royal Economic Society, vol. 128(614), pages 2507-2537, September.
    15. Ashraf, Junaid, 2022. "Do political instability, financial instability and environmental degradation undermine growth? Evidence from belt and road initiative countries," Journal of Policy Modeling, Elsevier, vol. 44(6), pages 1113-1127.
    16. Chien-Chiang Lee & En-Ze Wang, 2021. "Economic Complexity and Income Inequality: Does Country Risk Matter?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 154(1), pages 35-60, February.
    17. Gideon Ndubuisi & Solomon Owusu, 2022. "Trust, Efficient Contracting and Export Upgrading," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 34(6), pages 2708-2729, December.
    18. Trung V. Vu, 2022. "Does institutional quality foster economic complexity? The fundamental drivers of productive capabilities," Empirical Economics, Springer, vol. 63(3), pages 1571-1604, September.
    19. Maurice Kugler & Eric Verhoogen, 2012. "Prices, Plant Size, and Product Quality," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(1), pages 307-339.
    20. Auriol, Emmanuelle & Biancini, Sara & Paillacar, Rodrigo, 2019. "Universal intellectual property rights: Too much of a good thing?," International Journal of Industrial Organization, Elsevier, vol. 65(C), pages 51-81.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:16:y:2024:i:11:p:4748-:d:1407542. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.