How Distortive Are Turnover Taxes? Evidence from Replacing Turnover Tax with VAT

Jing Xing, Katarzyna Bilicka and Xipei Hou

No 9511, CESifo Working Paper Series from CESifo

Abstract: In this paper, we investigate distortions created by turnover taxes. As a natural experiment, we explore a reform that replaced turnover taxes with value-added taxes for some service industries in China, while the taxation of manufacturing industries remained unchanged. The reform increased sales, R&D investment, and employment for affected service firms, which is primarily driven by outsourcing from downstream manufacturing _rms. We document that smaller and less innovative manufacturing firms outsource more, and reallocation increases the quality of innovation for affected service firms. Our study provides new evidence on the negative impact of turnover taxes imposed on business inputs.

Keywords: turnover tax; value-added tax; outsourcing; R&D investment (search for similar items in EconPapers)
JEL-codes: D25 H25 H26 O32 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-cna, nep-pbe, nep-sbm and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp9511.pdf (application/pdf)

Related works:
Working Paper: How Distortive are Turnover Taxes? Evidence from Replacing Turnover Tax with VAT (2022)
Working Paper: How Distortive are Turnover Taxes? Evidence from Replacing Turnover Tax with VAT (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_9511

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().