Export to Elude

58 Pages Posted: 7 Aug 2020 Last revised: 11 Aug 2020

See all articles by Haichao Fan

Haichao Fan

Fudan University - School of Economics

Yu Liu

Fudan University - School of Economics

Qiu Larry

affiliation not provided to SSRN

Xiaoxue Zhao

Wesleyan University

Date Written: June 10, 2020

Abstract

How does domestic value-added tax (VAT) reform affect firms’ export? We address this question via a model in which firms choose their sales for the domestic and foreign markets optimally. The model predicts that strengthening domestic tax enforcement has a negative effect on domestic sales but a positive effect on exports when firms face a convex production cost function. We test the model predictions using detailed firm- and product-level data from Chinese industrial surveys and customs records. Our empirical analyses rely on China’s Golden Tax Project, which is an information technology introduced in 2001-2002 that dramatically reduces the cost of VAT enforcement. We find that after the adoption of the technology by the government, firms located far from local tax offices face a larger increase in their effective VAT rates than those located nearby (the enforcement effect), and the former increase their export more than the latter (the elusion effect). We also find that the elusion effect is stronger for firms subject to higher export rebates or more severe financial constraints.

Keywords: enforcement technology, VAT export rebate, exports, convex costs, financial constraints

JEL Classification: H26, H32, F13, F14

Suggested Citation

Fan, Haichao and Liu, Yu and Larry, Qiu and Zhao, Xiaoxue, Export to Elude (June 10, 2020). Journal of International Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3667012

Haichao Fan

Fudan University - School of Economics ( email )

600 GuoQuan Road
Shanghai, 200433
China

Yu Liu

Fudan University - School of Economics ( email )

600 GuoQuan Road
Shanghai, 200433
China
02165642263 (Phone)

Qiu Larry

affiliation not provided to SSRN

Xiaoxue Zhao (Contact Author)

Wesleyan University ( email )

238 Church Street
Middletown, CT 06459-0007
United States

HOME PAGE: http://sites.google.com/site/xiaoxuezhao/

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