Export Tax Rebates Research Articles

Do export tax rebates promote firm upgrading? Evidences from labor-intensive firms in China

With increasing the low-cost competition in international market, firm upgrading especially for Chinese labor-intensive firms is vital to strengthening their export competitiveness. Using a panel data of Chinese labor-intensive firms for 2001–2013, this paper explores whether export tax rebates (ETR) promote firm upgrading measured by technological sophistication and product quality. Results show that a positively significant effect of ETR on firm upgrading. An increase in ETR rates by 10 % upgrades technological sophistication by 2.3 % and product quality by 2.1 %. Moreover, there exists an inverse-U shaped relationship between the rebate rate and firm upgrading, and the turning point occurs when the rate is at 0.15 for technological sophistication and at 0.13 for product quality. Further mechanism analysis reveals that the internal knowledge creation and international knowledge transfer are two parallel pathways linking ETR and firm upgrading. The effect of ETR on technological sophistication is carried mainly by internal knowledge creation, while international knowledge transfer is more important for upgrading product quality. However, the ETR effects vary across firms with different characters.

The impact of export tax rebate reform on industrial exporters’ soot emissions: Evidence from China

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.

Export tax rebates and enterprise export resilience in China

This paper discusses the micro effect of export stimulus policy. We use the seven rounds of export tax rebates implemented by the Chinese government during the international financial crisis as a natural experiment and explore their impact on the export resilience of firms using the difference-in-differences approach. We find that the export resilience of Chinese enterprises increased by 0.027 standard deviations due to export tax rebates. Further studies confirm that export tax rebates significantly improve export resilience mainly by reducing value-added taxes, expanding production scale, and accelerating the adjustment of export structure. In addition, the positive effect of export tax rebates varies among enterprises and products. These results highlight the critical role of stimulative policies in promoting export resilience.

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

This paper examines the nexus between export tax rebates and productivity using Chinese firm-level data from 2000 to 2007. The empirical findings indicate that a one percentage point decrease in export tax rebate rates increases the total factor productivity (TFP) of a firm by about 0.1 percentage points. We explore the possible mechanisms that explain this nexus and attribute it to the allocation effect of export tax rebate policy; that is, export tax rebates prevent low-productivity firms from exiting the market and further reallocate resources and economic activities to them. In addition, a decrease in rebate rates significantly encourages the TFP growth of surviving firms and leads to an increase in aggregate TFP. Specifically, throughout 2000–07, the declining rebate rates accounted for 5.23% of the rise in the aggregate TFP, and the between-firm effect was 3.85%, which is much larger than the within effect.

Export tax rebates and resource misallocation: Evidence from a large developing country

AbstractThe 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.

The effect of export tax rebates on product quality: evidence from China's agricultural product processing industry

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.

Is export tax rebate a quality signal to determine firms’ capital structure? A financial intermediation perspective

This paper empirically examines the casual effect of export tax rebates (ETRs) on firm capital structure. The results of analyzing large panel data on Chinese manufacturing firms from 2007 to 2015 suggest that firms that obtain ETRs are more likely to access leverage. Moreover, ETRs affect the leverage ratio through funding fixed assets investments, smoothing financial costs, and alleviating for internal financing. In addition, ETRs are positively associated with leverage through improvements in firm performance, including firms’ total factor productivity, profitability, and labor productivity. Additionally, the effect of ETRs on leverage plays a stronger role in private firms than in state-owned or foreign firms.

A Literature Review of the Research on Markups of China's Manufacturing Exports and Non-Export Firms

According to the variable markup trade theory and the industrial organizational theory, generally higher markup means stronger market pricing power and higher productivity for a firm, while higher-productivity firms choose to export, which means the markup of export firms should be higher. However, the actual situation in China is the opposite. The markup of non-export firms is even higher. Therefore, scholars, who have observed this problem, have begun to use different markup-measurement methods to study this phenomenon, ranging from different angles, which include export tax rebates, import competition, and resource allocation. This paper reviews the literature from four aspects, which are the development of the variable markup trade theory, the development of markup measurement methods, the development of empirical research on China export firms’ abnormal markup phenomenon, and looks forward to the follow-up research, in order to make some contribution to continuously supplement and improve the research about this abnormal phenomenon in China.

China's exports, export tax rebates and exchange rate policy

AbstractThis 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.

Market Efficiency, Heterogeneous Trade Costs and Export‐Only Firms

AbstractThis paper provides a two‐country general equilibrium model under monopolistic competition, in which we incorporate heterogeneous fixed export costs, a non‐zero export tax rebate rate and efficiency asymmetry to explain the existence of export‐only firms. We focus on the impact of efficiency differences on social welfare and the evolution of export‐only activities from autarky to trade. We show that exposure to trade brings a country of larger size and with higher efficiency more welfare gains, including higher industry productivity and greater variety of products. We also find that firms that face lower fixed export costs enjoy greater export tax rebates and firms that are located in more efficient countries have a greater chance of becoming export‐only firms. Further internationalization promotes the prosperity of export‐only activities.

Export Tax Rebates and Resource Misallocation: Evidence from a Large Developing Country

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.

Does U.S. Pressure Lead to Changes in China’s Exchange Rate?

:The role of external political pressure in the appreciation of the Chinese renminbi against the U.S. dollar since 2005 has been the subject of debate. While Chinese authorities maintain that only domestic considerations have played a role, whether the appreciation has also been the result of the exercise of international monetary power by the United States has been examined using three different approaches. The results have been contradictory with the weight of studies finding against U.S. pressure having an effect on the exchange rate. In this article, we use Granger causality tests to reexamine the issue using data from 2000–2014. We find evidence that U.S. pressure does Granger-cause renminbi appreciation. We also examine whether U.S. pressure causes the changes in China’s export tax rebates. We find no evidence for this.

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

Export tax rebates are an important policy instrument for stimulating exports, which many developing countries make use of. However, excessive export tax rebates and inappropriate structural arrangements can lead to over-production in highly polluting industries and cause the environment to deteriorate. This paper, taking China as the study case, tests and verifies the statistical significance of the causal relationship between export tax rebates and pollution emissions. With a computable general equilibrium modeling, the current study further analyzes the effectiveness of export tax rebate adjustments aimed at alleviating environmental pressure for different time periods. It is found that before 2003, export tax rebates primarily promoted exports and boosted foreign exchange reserves, and highly polluting sectors enjoyed above-average export tax rebates, which led to increased pollution emissions. Between 2003 and 2010, the export tax rebate system was reformed to reduce support for the highly polluting export sectors, which led to decreases in emissions. Canceling export tax rebates for highly polluting sectors is shown to be the most favorable policy choice for improving the environmental performance of China's international trade. This study can serve as reference for other developing countries which similarly rely on export tax rebates, so that they can adjust their policies so as to combine economic growth with pollution control.

VAT rebates and export performance in China: Firm-level evidence

A destination-based VAT system without a complete export tax rebate is detrimental to a country's exports, while an increase in the VAT rebate rate helps reduce the negative effects. In this paper, we study the role of VAT rebates in affecting Chinese exports using firm-level panel data for 2000–2006. To address potential endogeneity, we rely on a quasi-natural policy experiment in 2004, when the fiscal conditions of local governments became important in determining the actual VAT rebate rates for exports. The empirical findings demonstrate significant and large effects of VAT rebates on export volume. On average, for each percentage point increase in the VAT rebate rate, the amount of exports increased by 13%, which translates into an additional $4.70 of exports for each $1 of export tax rebates paid.

Aggregate Savings and External Imbalances in China

Over the last decade, the internal and external macroeconomic imbalances in China have risen to unprecedented levels. In 2008, China's national savings rate soared to over 53 percent of its GDP, whereas its current account surplus exceeded 9 percent of GDP. This paper presents a unified framework for understanding the structural causes of these imbalances. I argue that the imbalances are attributable to a set of policies and institutions embedded in the economy. I propose a unified framework for understanding the joint causes of the high savings rate and external imbalances in China. My explanations first focus on an array of factors that encouraged saving across the corporate, government, and household sectors, such as policies that affected sectoral income distribution, along with factors like incomplete social welfare reforms, and population control policies. I then turn to policies that limited investment in China, thus preventing the high savings from being used domestically. Finally, I will examine how trade policies, such as export tax rebates, special economic zones, and exchange rate policies, strongly promote exports. Moreover, the accession of China to the World Trade Organization has dramatically amplified the effects of these structural distortions. In conclusion, I recommend some policy reforms for rebalancing the Chinese economy.

Reported trade figure discrepancy, regulatory arbitrage, and round-tripping: Evidence from the China–Hong Kong trade data

This study uses reported trade figures from China and Hong Kong to examine the relationships among market impediments, trade figure irregularities, and tax-induced regulatory arbitrage. The empirical findings, consistent with our tax-induced regulatory arbitrage models and the round-tripping phenomenon in China (that is, moving funds across the Mainland Chinese border through trade, typically to Hong Kong or an offshore tax haven, before re-entering China as foreign direct investment), provide support for several conclusions. First, the spurious flows of funds to and from China, via the underreporting of exports and the overreporting of imports, closely follow the preferential tax incentives accorded to foreign investors. Second, the underreporting of exports is negatively related to export tax rebates. Third, the overreporting of imports is negatively related to import tariffs. Finally, both of these two appear to be most prevalent in state-owned enterprises.

The effect of export tax rebates on export performance: Theory and evidence from China

This paper develops a Cournot quantity competition model to examine the effect of export tax rebate policy on export performance. The main conclusions drawn are as follows: (i) when a government raises the export rebate rate, the output of final goods for export by the domestic firm increases, while the output of the foreign competitor decreases; (ii) when a government raises the export rebate rate, the profit of the domestic firm increases, while that of the foreign competitor decreases; and (iii) the optimum export rebate rate is positive and greater than 1, indicating that the domestic government not only refunds fully the custom duties paid by the domestic firm on imported intermediate goods, but also offers export subsidies for its export of final goods. To corroborate the conclusions drawn based on the theoretical model, empirical analysis was carried out using the statistical data of China from 1985 to 2002. The test results of Spearman rank correlation coefficient show that China's export tax rebate policy has significant positive correlation with its exports, final domestic consumption, and foreign exchange reserve.

How Brazil Transferred Billions to Foreign Coffee Importers: The International Coffee Agreement, Rent Seeking and Export Tax Rebates

Rent seeking is well known, but empirical evidence of its effects is relatively rare. This paper analyzes the how domestic and international rent seeking caused Brazil to provide coffee export tax rebates that transferred foreign exchange to coffee importers. Although Brazil was the world's largest exporter, it began to pay export tax rebates to selected coffee importers in 1965 and, by 1988, had paid rebates totaling $8 billion. Brazil explained these rebates as a mechanism to price discriminate among importers and expand exports within the context of the export quota imposed by the International Coffee Agreement. We show this explanation was invalid during most of the period. The net price fell for those who received rebates, causing Brazil to effectively transfer approximately $3 billion to foreign importers. The effects of the rebate policy were never recognized in Brazil, hidden largely by the complex nature of government intervention in the coffee sector.

Export Duty Rebates and Export Performance: Theory and China's Experience

Using a general-equilibrium model, this paper finds that, for an economy suffering from sector-specific unemployment, export tax rebates on imported foreign intermediates can expand its related down- and up-stream industries, thereby boosting exports. This result is verified by using China's data; the export tax rebate, foreign income, and exchange rate volatility contribute significantly to China's exports in the long run, but only the export tax rebate promotes exports in the short run. J. Comp. Econ., June 2001, 29(2), pp. 314–326. Chinese University of Hong Kong, Shatin, Hong Kong; City University of Hong Kong, Kowloon, Hong Kong. Copyright 2001 Academic Press.Journal of Economic Literature Classification Numbers: F13, F14, P52.