Our study shows that China's export value-added tax (VAT) rebate system is a major industrial policy that affects its exports. We use export data at the HS6 product level for a panel of 329 Chinese cities over the 2003–2012 period to assess how changes in the export VAT tax have affected China's export performance. We consider different trade margins in terms of volumes, prices, and the number of countries served. To counter endogeneity, we exploit variations in the expected impact of the export VAT rebates by trade regime, which come from an eligibility rule disqualifying certain export flows from the rebates. Our results suggest that a 1 percent decline in the export VAT tax leads to a 7.2 percent relative increase in eligible export values at the city level. This effect is due to an adjustment of quantities and the number of foreign markets served while the average unit values of exports remain unchanged.
|Number of pages||35|
|Journal||Scandinavian Journal of Economics|
|Publication status||Published - Jan 2022|
Bibliographical noteFunding Information:
We are grateful to Zhang Yuheng for her research assistance. This paper benefited from the financial support of the program “Investissement d'Avenir” (reference ANR‐10‐LABX‐14‐01) of the French government.
© 2021 The Authors. The Scandinavian Journal of Economics published by John Wiley & Sons Ltd on behalf of Föreningen för utgivande av the SJE.