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The Impact of Intranational Trade Barriers on Exports: Evidence from a Nationwide VAT Rebate Reform in China

Jie Bai, Jiahua Liu, Feb 19, 2020

It is well known that various forms of non-tariff trade barriers exist within a country. Empirically, it is difficult to measure these barriers as they can take many forms. We take advantage of a nationwide VAT rebate policy reform in China as a natural experiment to identify the existence of these intranational barriers due to local protectionism and study the impact...

Relocating or Redefined: A New Perspective on Urbanization in China

Li Gan, Qing He, Ruichao Si, Daichun Yi, Mar 18, 2020

We study the urbanization process in China during the past decade by deconstructing different sources of new urban residents. We find that around one-third of urban population growth in the past decade has consisted of redefined migrants from communities that have been reclassified from rural to urban, though they do not actually move. We further find evidence that failing to consider the number of redefined migrants and their housing behaviors leads to a high housing vacancy rate in China’s urban areas.

Tax Policy and Lumpy Investment Behavior: Evidence from China’s VAT Reform

Zhao Chen, Xian Jiang, Zhikuo Liu, Juan Carlos Suárez Serrato, Daniel Yi Xu, Apr 01, 2020

To stimulate investment and promote production efficiency, the Chinese government has undertaken a series of value-added tax (VAT) reforms. One of those reforms, in 2009, reduced not only the purchasing price of equipment, but also investment frictions, i.e., the price gap imposed by the pre-reform VAT system between new and used equipment. We find that this reform increased equipment investment by 36% and, more importantly, the increase was driven by investment spikes (i.e., investment greater than 20% of capital stock). Using a dynamic investment model, we find that tax policies that directly reduce investment frictions, such as investment tax credits, are more effective in stimulating investment than policies such as corporate income tax cuts or bonus depreciation.