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- Title
Export tax rebates and resource misallocation: Evidence from a large developing country.
- Authors
Weinberger, Ariel; Xuefeng, Qian; Yaşar, Mahmut
- Abstract
The export tax rebate policy is one of the most frequently used policy instruments by Chinese policy‐makers. This paper provides a vital analysis of its allocation effects. We use customs transactions, tax administration and firm‐level data to measure the effect of variation in export tax rebates, taking advantage of the large policy change in 2004. A difference‐in‐difference approach allows us to compare the production and pricing decisions of eligible versus non‐eligible firms and the distributional implications. We tie these distributional results to a structural model akin to Hsieh and Klenow (2009) where incomplete tax rebates act as a tax on revenue of export sales. A reduction in tax rebates shifts production away from rebate‐eligible firms and decreases allocative efficiency. Our takeaway is that by adjusting its value‐added tax policy as a part of broader policy objectives, China introduces an allocative efficiency dimension that must be taken into consideration.
- Subjects
CHINA; EXPORT duties; TAX rebates; REBATES; FISCAL policy; DEVELOPING countries; TAX cuts; VALUE-added tax
- Publication
Canadian Journal of Economics, 2021, Vol 54, Issue 4, p1562
- ISSN
0008-4085
- Publication type
Article
- DOI
10.1111/caje.12556