The Value-Added Tax Reform Puzzle

37 Pages Posted: 20 Apr 2016

See all articles by Jing Cai

Jing Cai

University of California, Berkeley

Ann E. Harrison

University of California, Berkeley; National Bureau of Economic Research (NBER)

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Date Written: September 1, 2011

Abstract

This explores the impact of a tax reform in some provinces of China which eliminated the value-added tax on some investment goods. While the goal of the experiment was to encourage upgrading of technology, the results suggest that there was no evident increase overall in fixed investment, and employment fell significantly in the treated provinces and sectors. The reform reduced the total number of employees for all types of firms. For domestic firms, it reduced employment by almost 8 percent. The results are robust to a variety of approaches, and suggest that the primary impact of the policy has been to induce labor-saving growth. This experiment has since been extended to the rest of China.

Keywords: Taxation & Subsidies, Investment and Investment Climate, Debt Markets, Emerging Markets, Economic Theory & Research

Suggested Citation

Cai, Jing and Harrison, Ann E., The Value-Added Tax Reform Puzzle (September 1, 2011). World Bank Policy Research Working Paper No. 5788, Available at SSRN: https://ssrn.com/abstract=1923546

Jing Cai

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

Ann E. Harrison

University of California, Berkeley ( email )

Giannini Hall
Berkeley, CA 94720-3880
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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