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Incomplete VAT rebates to exporters : how do they affect China's export performance?

  • Julien Gourdon
  • Stéphanie Monjon
  • Sandra Poncet

During the last decade, the Chinese government has frequently changed the value added tax (VAT) refund levels offered to exporters. Indeed, China's VAT system is not neutral, in particular because the exporters may not receive complete refund of the domestic VAT paid on their inputs. This paper investigates how changes in the VAT rebates affect export performance in China. Our empirical analysis relies on export volume data at the HS6 product level over the 2003-12 period. To address potential endogeneity, we exploit an eligibility rule that disqualifies processing trade with supplied materials from the rebates. We find that the adjustments to the VAT rebates have significant repercussions on the exported volume: a one percentage point increase in the VAT rebate can lead to a 7% increase in export volumes. This magnitude allows to better understand the strong resistance of China's exports amid the global recession.

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Paper provided by CEPII research center in its series Working Papers with number 2014-05.

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Date of creation: Feb 2014
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Handle: RePEc:cii:cepidt:2014-05
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  1. Fabrice Defever & Alejandro Riaño, 2013. "China's Pure Exporter Subsidies," FIW Working Paper series 121, FIW.
  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.
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  4. Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2010. "China's Current Account and Exchange Rate," NBER Chapters, in: China's Growing Role in World Trade, pages 231-271 National Bureau of Economic Research, Inc.
  5. Fernandes, Ana P. & Tang, Heiwai, 2012. "Determinants of vertical integration in export processing: Theory and evidence from China," Journal of Development Economics, Elsevier, vol. 99(2), pages 396-414.
  6. Kalina Manova & Zhihong Yu, 2012. "Firms and Credit Constraints along the Global Value Chain: Processing Trade in China," NBER Working Papers 18561, National Bureau of Economic Research, Inc.
  7. Zhihong Yu & Yundan Gong & Sourafel Girma & Holger Görg, 2008. "Can production subsidies explain China's export performance? Evidence from firm level data," Kiel Working Papers 1442, Kiel Institute for the World Economy.
  8. Martin S. Feldstein & Paul R. Krugman, 1990. "International Trade Effects of Value-Added Taxation," NBER Chapters, in: Taxation in the Global Economy, pages 263-282 National Bureau of Economic Research, Inc.
  9. Upward, Richard & Wang, Zheng & Zheng, Jinghai, 2013. "Weighing China’s export basket: The domestic content and technology intensity of Chinese exports," Journal of Comparative Economics, Elsevier, vol. 41(2), pages 527-543.
  10. Chen, Chien-Hsun & Mai, Chao-Cheng & Yu, Hui-Chuan, 2006. "The effect of export tax rebates on export performance: Theory and evidence from China," China Economic Review, Elsevier, vol. 17(2), pages 226-235.
  11. Chandra, Piyush & Long, Cheryl, 2013. "VAT rebates and export performance in China: Firm-level evidence," Journal of Public Economics, Elsevier, vol. 102(C), pages 13-22.
  12. repec:wyi:journl:002196 is not listed on IDEAS
  13. Peter M. Morrow & Loren Brandt, 2013. "Tariffs and the Organization of Trade in China," Working Papers tecipa-491, University of Toronto, Department of Economics.
  14. Lohmar, Bryan & Gale, H. Frederick, Jr., 2008. "Who Will China Feed?," Amber Waves, United States Department of Agriculture, Economic Research Service, June.
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