Export tax rebate and technological innovation

Adjusting export tax rebates to reduce the environmental impacts of trade: Lessons from China

PurposeThis study aims to establish the linkage among export tax rebate (ETR), firm innovation and product quality of Chinese agricultural product processing industry (APPI), so that more targeted policy implications can be discussed.Design/methodology/approachUsing highly disaggregated firm-product-destination-level data through 2001 to 2013 of Chinese APPI, this study employs a two-way fixed effects specification to establish the linkage between ETR and product quality, while the mediational model is adopted to examine potential mechanisms.FindingsBaseline estimates show that a 1% increase in ETR rate leads to a significant increase in the product quality of APPI by 0.12% on the whole. However, there is a nonlinear, inverse-U shaped relationship between ETR and product quality, and the optimal inflection point occurs when ERT rate equals 0.15. Mechanism analyses show that firm innovation is an important impact channel, which explains 9.8% of quality improvement induced by raising ETR. Further heterogeneous analyses reveal both the total effects of ETR on product quality and the mediation effects of innovation are dominated by young SMEs (small and medium-size enterprises).Practical implicationsAuthorities can promote the innovation and then product quality improvement of young SMEs by moderately increasing ETR rate. To ensure ETR more effective in improving quality, it is necessary for the government to encourage innovation. Authorities can reduce the risk of innovation failure for low-tech firms by increasing R&D subsidies, while ensuring innovation returns for high-tech firms in combination with stronger intellectual property protection.Originality/valueFirst, this is one of the earlier studies to explore the relationship between ETR and product quality specifically for Chinese APPI. Second, we show firm innovation as an important mediator so that policies aim at raising ETR rates are eventually beneficial to product quality. Third, using the highly disaggregated data, we allow ETR rate to vary across different products, which is an improvement in the accuracy of previous literature. Finally, our research provides additional empirical evidence for revealing the micro-mechanism of ETR affecting firm behaviors.

The export tax rebate (ETR) policy is one of the most frequently used policy instruments by Chinese policy makers. This paper therefore provides a vital analysis of its allocation effects. To motivate our empirical analysis for the allocation effects of the ETR policy, we first add a tax rebate to the Melitz and Ottaviano (2008) model and examine the impact of this policy on firms' markup size and resource allocation between eligible and non-eligible firms for the rebates. 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-indifference approach allows us to compare the production and pricing decisions of eligible versus non-eligible firms and the distributional implications. We find that an increase in tax rebates shifts production to eligible firms and that tax rebates increase allocative efficiency.

Using a survival analysis technique, this paper investigates the impact of the export tax rebate (ETR) on duration of the firm, country/destination, and product (F–C–P)‐level export spells in China. Empirical analysis of a large dataset that covers the 2001 to 2013 period shows that the effect of ETR on duration of export spells of Chinese firms is large and statistically significant. A 1 percentage point increase in ETR rate increases the duration rate of F–C–P relationships by 23.2%. Furthermore, compared with the high‐tech firms, low‐tech and middle‐tech firms experience a larger increase in the duration of export spells in response to increase in China's ETR. Firm ownership‐based analysis shows that an increase in ETR leads to a larger increase in export spells of privately owned firms than the export spells of state‐ and foreign‐owned firms. These findings have important policy implications for the design and implementation of China's ETR policy.

Can export tax rebate alleviate financial constraint to increase firm productivity? Evidence from China

Are export tax rebates patronage for Chinese firms? An analysis of productivity

This paper examines the relationship between China's exports, export tax rebates and exchange rate policy. It offers an explanation for why China's exports continued to rise under RMB real appreciations during the Asian financial crisis. Based on a traditional export demand model, we test our hypothesis that the counteracting effects of China's export tax rebate policy have diminished the effectiveness of real exchange rates in facilitating the resolution of trade imbalances under the current pegged exchange rate regime. We find evidence that RMB real appreciations during the crisis negatively affected China's exports, but the negative effects were mitigated by the positive effects of export tax rebates. We also find evidence of a long‐run relationship between China's exports and the other explanatory variables. The empirical evidence suggests that under the pegged exchange rate regime with limited adjustments, real exchange rate movements alone cannot resolve China's external imbalances. The policy implication of this study is that China needs to redirect its decades‐long export‐oriented development strategy to one that emphasises domestic demand‐oriented development and to replace the current pegged exchange rate regime with a market‐oriented more flexible exchange rate regime.

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.

Multi-product firms, product scope, and the policy of export tax rebate

Export tax rebate (ETR) and inwards foreign direct investment (IFDI) are important driving forces for the steady development of China’s export-oriented economy. Based on data from 2004 to 2019, this study puts forward relevant assumptions on constructing a model for empirically analyzing the impact of the ETR on China’s IFDI from the perspective of the national and the sub-national. The result demonstrates that there exists a complementary relationship between the ETR and IFDI; the weak lag effect of ETR on IFDI in the eastern, middle, and western regions of China; an explicit impact on the performance in the western region, which lags behind only one period; and no significant lag effect of ETR on IFDI in developed, moderately developed, and underdeveloped regions. On the basis of this evaluation, the conclusion could be achieved that that ETR has a significant effect on IFDI, though there may be differences in the direction and value of the impact. The highlight of this research is to detect the impact of ETR on IFDI by taking China as a case, and achieved that there exist sub-national differences, including the geographical and development-level differences.

In this paper, we systematically explore the environmental effects of the export tax rebate rate reduction policy using the China Industrial Enterprise Database, the China Industrial Enterprise Pollution Database, and the China Customs Import and Export Database from 2005 to 2013. Our difference-in-difference (DID) estimates show that the reduction in the export tax rebate rate significantly reduces the intensity of corporate soot emissions, and this finding holds after a series of robustness tests. For every 1-unit reduction in export tax rebate rate, industrial exporters’ soot emission intensity decreases by 2.63%. The mechanism analysis shows that the decrease in soot generation, the decrease in coal use intensity, the increase in total amount and efficiency of soot treatment are important channels. Heterogeneity analysis shows that the reduction of export tax rebate rate has a more significant impact on the intensity of soot emissions of high pollution, high energy consumption and resource-based enterprises. This study may provide a reference for other developing countries that also rely on export tax rebates to adjust their policies to combine economic growth with pollution control.

Since 1985, China began to implement the export tax rebate policy, mainly through adjusting the export tax rebate rate of goods to affect its profit rate, thus affecting the export scale of goods, and gradually regard the export tax rebate policy as one of the important measures of macroeconomic adjustment of economic operation, and make adjustments according to the actual situation of economic operation. Firstly, this paper reviews the history of some major adjustments of the export tax rebate policy, collects relevant data, reflects the great changes of China's total export and its commodity structure, makes in-depth analysis and summary of these changes, and finally puts forward relevant suggestions on the problems existing in the export tax rebate system.

This paper examines the influence of gray market on manufacturer’s channel selection when considering the export tax rebate. A two-country, three-stage model is used to investigate manufacturer’s optimal operation strategy. We get the equilibrium outcomes through a Stackelberg game in different scenarios. The results show that the Company U may have incentive to encourage gray market if market demand ratio and product differentiation satisfied some condition. In a gray market setting the manufacturer prefers external sales channel with the two-part tariff contract first, a direct channel second, and external sales channel with wholesale price contract third. The study also shows that the policy of the export tax rebate will enhance manufacturer’s profit and increase sales volume of gray market goods. In the extension, if manufacturer selects the direct channel, he can achieve optimal profit by giving decision power to sales department to determine retail quantity. Because the transfer price given by the manufacturer can convey signals of domestic market competition.

The development of cross-border e-commerce platform promotes the new channel model between domestic and international. How to determine the dual-channel pricing decision of manufacturers and retailers under the condition of tariff and transportation heterogeneity has become an important and realistic problem. Based on the perspective of cross-border e-commerce dual-channel supply chain, this paper considers the impact of import tariff, transport heterogeneity and export tax rebate, compares and analyzes the performance difference between decentralized decision-making and centralized decision-making, and analyzes the impact of import tariff, export tax rebate and transport heterogeneity on cross-border e-commerce dual-channel pricing, demand and profit. The results show that the tariff is positively correlated with the manufacturer's direct selling price and the retailer's retail price, while the tariff is negatively correlated with the wholesale price, the demand and profit of direct selling channel and the retail channel. Export tax rebate rate is positively correlated with manufacturers' demand and profit and retailers' demand and profit, and negatively correlated with manufacturers' wholesale price, direct selling price and retail price. The increase of unit freight in direct channel is unfavorable to manufacturers and beneficial to retailers; The increase in unit freight rates in retail channels is bad for both manufacturers and retailers. Centralized decision-making is beneficial to supply chain demand and profits, and can improve the overall performance of the supply chain.

The export tax rebate policy in China is under dispute, especially in agricultural sectors, as it is claimed that it works as a subsidy for foreign consumers rather than domestic producers. Surprisingly, little research has investigated the distribution of benefits of this policy. In this paper, we examine this in a partial equilibrium framework. We find that the effects of the export tax rebate on domestic producers depend on the relative magnitude of the export supply and import demand elasticities. The model is then applied to the Chinese fishery sector, a perfect example to illustrate the policy debate. Simulation results indicate that, although the export tax rebate increases Chinese producers’ welfare, foreign consumers capture most of its welfare benefits (60%-75%). Furthermore, the results imply that the welfare gain for Chinese producers is overestimated if vertical linkage between the retail and the farm markets is ignored.