Value-added tax reform and service exports: Evidence from China

Yan Zhang, Zhuoran Bai and Christopher Findlay

The Journal of International Trade & Economic Development, 2024, vol. 33, issue 4, 551-573

Abstract: In 2012, sales tax was replaced in China with value-added tax (VAT). This study evaluates the effect of this change on service exports. VAT reform was introduced across provinces and service sectors at different times. Hence, our paper identifies the impacts of VAT reform on firms’ export behavior by utilizing a difference-in-difference (DID) estimation methodology and finds that VAT reform significantly increases service exports in intensive and extensive margins. The export-enhancing effects are larger for non-state-owned enterprises and firms of larger scale and higher productivity levels. VAT reform alleviates tax magnification and double taxation and effectively promotes the competitiveness of China's service exports. With the complete implementation of VAT reform, alongside the full refund of VAT on exported products, China's service exports would increase by approximately two-and-a-half times.

Date: 2024
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DOI: 10.1080/09638199.2023.2199437

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