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The response of small firms to VAT thresholds: evidence from China

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  • Enhui Kou
  • Yukun Sun
  • Linfeng Yue

Abstract

This paper explores the response of small-scale value-added tax (VAT) taxpayers to the changes of VAT thresholds and VAT tax rates. Using firm-level tax administrative data for the period between 2005 and 2012, we find that firms tend to bunch around the VAT thresholds. We also find that commercial firms and firms with higher value-added ratios are less likely to register as general taxpayers. We provide an estimate of the elasticity of the VAT tax base in the range of 0.027 and 0.05.

Suggested Citation

  • Enhui Kou & Yukun Sun & Linfeng Yue, 2021. "The response of small firms to VAT thresholds: evidence from China," Applied Economics Letters, Taylor & Francis Journals, vol. 28(17), pages 1526-1530, October.
    • Handle: RePEc:taf:apeclt:v:28:y:2021:i:17:p:1526-1530
    DOI: 10.1080/13504851.2020.1830931
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    Cited by:

    1. Guo, Yue Mei & Li, Xiao, 2023. "The impact of greater VAT tax neutrality on total factor productivity: Evidence from China’s VAT credit refund reform in 2018," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 922-936.

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