China’s Value-added Tax Reform and Quality Upgrade of Export Products

Sheng Dan; Yang Huimei

doi:doi:10.16538/j.cnki.jfe.2020.06.006

Summary

At this stage, China’s economy has shifted from a high-speed growth stage to a high-quality development stage. We must adhere to quality first, promote quality changes in economic development, accelerate the construction of a manufacturing power, and promote the construction of a trade power. Under this background, improving the quality of export products, cultivating new advantages in export competition, and realizing the conversion of export products from low-price competition to quality competition have become a problem that must be considered at present.

Based on the perspective of supply-side structural reforms, this paper takes the deepening of the value-added tax（VAT）reform as the starting point, systematically analyzes the internal relationship between the VAT reform and export product quality. Then, using the quasi-natural experiment of China’s 2004 VAT reform in the northeast area and the data of China’s annual survey of industrial firms and customs import and export trade from 2000 to 2007, this paper investigates the impact of the VAT reform on export product quality through the method of difference-in-differences based on a comprehensive description of the evolution characteristics of China’s export product quality. The results show that, first, the VAT reform has a significant positive effect on export product quality and is conducive to the quality upgrade of export products. After considering a series of robustness tests, the conclusion is still valid. Second, the mechanism analyses and tests show that the innovation performance of firms and the quality of imported intermediate products are the main channels through which the VAT reform affects export product quality. Finally, the heterogeneity analyses show that the effect of the VAT reform on export product quality varies depending on R&D intensity, factor intensity and the form of ownership. Specifically, the effect is more obvious in low-R&D-intensive firms, labor-intensive firms and non-state-owned firms.

Based on the above findings, the main enlightenments of this paper could be concluded as follows: First, the tax reduction policy has a positive effect on the improvement of export product quality, and the appropriate expansion of the coverage of preferential tax policies is optional. Second, the government should make full use of the tax reduction policy’s guidance and motivation to stimulate firms’ investment and speed up technological upgrading, and take the improvement of innovation performance and quality of imported intermediate products as important paths for improving firms’ export product quality. Furthermore, the formulation of tax policies should be more targeted and structured, and firms with weak R&D foundations, low technological levels and more constraints should be focused on.