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

42 Pages Posted: 27 Jan 2017

See all articles by Ariel Weinberger

Ariel Weinberger

George Washington University - Department of International Business

Qian Xuefeng

Zhongnan University of Economics and Law

Mahmut Yasar

University of Texas at Arlington - Department of Economics; Emory University - Department of Economics

Date Written: 2017-01-01

Abstract

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.

JEL Classification: F12, F13, F14, F6, O19, O24, O38

Suggested Citation

Weinberger, Ariel and Xuefeng, Qian and Yasar, Mahmut, Export Tax Rebates and Resource Misallocation: Evidence from a Large Developing Countr (2017-01-01). Globalization and Monetary Policy Institute Working Paper No. 302, Available at SSRN: https://ssrn.com/abstract=2906695 or http://dx.doi.org/10.24149/gwp302

Ariel Weinberger (Contact Author)

George Washington University - Department of International Business ( email )

2023 G Street NW
Washington, DC 20052
United States

Qian Xuefeng

Zhongnan University of Economics and Law ( email )

No.143, Wuluo Road
Wuhan, 430073
China

Mahmut Yasar

University of Texas at Arlington - Department of Economics ( email )

701 S. West Street
Arlington, TX 76019
United States

Emory University - Department of Economics ( email )

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