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The impact of export VAT rebate on firm-product markups: Evidence from Chinese industrial enterprises

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  • Sun, Churen
  • Wu, Han

Abstract

This study examines how the export value-added tax (VAT) rebate impacts exporters' product markups. Although the literature has extensively documented the various determinants of such markups, we provide more insights from the perspective of export VAT rebate policy. Using highly disaggregated firm-product data from 2000 to 2007 for China, we found that the implementation and increase of the export VAT rebate promotes exporters’ product markups. This effect is heterogeneous among firms and products. In addition, the effect of the export VAT rebate on firm-product markups can be decomposed into a reduction in marginal costs and an increase in export prices. Meanwhile, productivity enhancements and quality upgrading can explain the transmission of the export VAT rebate to such markups. Based on these results, we highlight the role of the export VAT rebate in determining firm-product markups and call for trade-promotion policies to cultivate product competitiveness in developing countries such as China.

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  • Sun, Churen & Wu, Han, 2023. "The impact of export VAT rebate on firm-product markups: Evidence from Chinese industrial enterprises," Economic Modelling, Elsevier, vol. 119(C).
    • Handle: RePEc:eee:ecmode:v:119:y:2023:i:c:s0264999322003807
    DOI: 10.1016/j.econmod.2022.106143
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