How Distortive are Turnover Taxes? Evidence from Replacing Turnover Tax with Vat

57 Pages Posted: 17 Jan 2022 Last revised: 7 Jul 2024

See all articles by Jing Xing

Jing Xing

Antai College of Economics & Management, Shanghai Jiao Tong University

Katarzyna Anna Bilicka

Utah State University

Xipei Hou

Shanghai Jiao Tong University (SJTU), Antai College of Economics and Management, Students

Sepideh Raei

Utah State University

Multiple version iconThere are 3 versions of this paper

Date Written: January 2022

Abstract

We investigate the impact of tax cascading on upstream and downstream firms. As a natural experiment, we explore a reform that replaced turnover taxes with value-added taxes for service industries in China, which effectively removed tax cascading. We find a relative increase in sales, R&D investment, and employment for affected service firms. These changes are mainly driven by increased outsourcing from manufacturing firms, and are unlikely to be caused by changes in firms’ tax burden or output prices. Our study provides new evidence on how taxation affects supplier networks and firm performance.

Suggested Citation

Xing, Jing and Bilicka, Katarzyna Anna and Hou, Xipei and Raei, Sepideh, How Distortive are Turnover Taxes? Evidence from Replacing Turnover Tax with Vat (January 2022). NBER Working Paper No. w29650, Available at SSRN: https://ssrn.com/abstract=4010499

Jing Xing (Contact Author)

Antai College of Economics & Management, Shanghai Jiao Tong University ( email )

1954 Huashan Road
Shanghai Jiao Tong University
Shanghai, Shanghai 200030
China
86 21 52301040 (Phone)

HOME PAGE: http://www.acem.sjtu.edu.cn/en/faculty/xingjing.html

Katarzyna Anna Bilicka

Utah State University ( email )

Xipei Hou

Shanghai Jiao Tong University (SJTU), Antai College of Economics and Management, Students ( email )

No.535 Fahuazhen Road
Shanghai
China

Sepideh Raei

Utah State University ( email )

Logan, UT 84322
United States

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