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

Jing Xing, Katarzyna Bilicka, Xipei Hou and Sepideh Raei

No 29650, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We investigate the impact of tax cascading on upstream and downstream firms. As a natural experiment, we explore a reform that replaced turnover taxes with value-added taxes for service industries in China, which effectively removed tax cascading. We find a relative increase in sales, R&D investment, and employment for affected service firms. These changes are mainly driven by increased outsourcing from manufacturing firms, and are unlikely to be caused by changes in firms’ tax burden or output prices. Our study provides new evidence on how taxation affects supplier networks and firm performance.

JEL-codes: D25 H25 H32 O32 (search for similar items in EconPapers)
Date: 2022-01
New Economics Papers: this item is included in nep-cna, nep-pbe, nep-pub, nep-sbm and nep-tra
Note: PE
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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)
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