5482 
6492As an important part of the proactive fiscal policy, tax reduction is a powerful means for a country to implement macro regulations. The Chinese government has always taken reducing the corporate tax burden as the main content of structural adjustment and growth promotion. Especially in recent years, the policy of slashing tax and fee reduction has been implemented one after another, in order to enable enterprises to really lightweight, effectively reduce their tax burden, improve their business performance, and thus drive the vitality of the whole economic market. It is undeniable that the transformation of value-added tax from production to consumption plays a crucial role in reducing the tax burden of enterprises. However, considering the significance of value-added tax reform from the view of reducing tax burden is far from enough. From a more profound perspective, tax reduction also has the role of " leveling competition areas in market competition and improving the efficiency of resource allocation”. The essence of tax reduction is to improve the efficiency of resource allocation. However, little literature has examined the effect of the value-added tax reform on markup dispersion and resource allocation in manufacturing industries. Based on 1998—2007 Chinese manufacturing firm-level data and using China’s value-added tax pilot reform in 2004 as a quasi-natural experiment, this paper estimates the impact of tax deduction on markup dispersion with the difference-in-differences method. In addition, we identify the specific mechanism of price and marginal cost channels affecting markup dispersion, and test the heterogeneity of industry technology level, SOE share and capital intensity. The results indicate that tax incentive provided by value-added tax reform reduces markup dispersion significantly and improves the efficiency of resource allocation. The further mechanism analysis suggests that value-added tax reform has a larger effect on markups at higher quantiles than at lower quantiles, and flattens markup distribution through price and marginal cost channels, thus improving resource allocation in manufacturing industries. In addition, the heterogeneity analysis across industries with different SOE share, capital intensity and technology level shows that the effect is significant in high SOE share industries, labor-intensive industries and low-tech industries. Therefore, we should continue to implement the tax reduction policy and regard tax deduction as the basic path for China to deepen the reform of the fiscal and taxation system in the future, and then give full play to the important role of taxation tools in promoting economic growth, adjusting structural imbalance, and accelerating the development of transition.
/ Journals / Journal of Finance and Economics
Journal of Finance and Economics
LiuYuanchun, Editor-in-Chief
ZhengChunrong, Vice Executive Editor-in-Chief
YaoLan BaoXiaohua HuangJun, Vice Editor-in-Chief
Value-Added Tax Reform, Markup Dispersion and Resource Allocation
Journal of Finance and Economics Vol. 45, Issue 02, pp. 4 - 16 (2019) DOI:10.16538/j.cnki.jfe.2019.02.001
Summary
References
Summary
[1] Fan G, Wang X L, Zhu H P. NERI INDEX of marketization of China’s provinces 2011 report[M], Economic Science Press, 2011. (In Chinese)
[2] Jiang W. Value-added tax distortion，Productivity dispersion and resource misallocation[J],The Journal of World Economy, 2016, (5)：54-77. (In Chinese)
[3] Liu Q R, Huang J Z. How does firm taxation influence the resource allocation efficiency[J], The Journal of World Economy, 2018,(1):78-100. (In Chinese)
[4] Liu Y, Hou S J, Geng C. Which drives the fixed asset investment? VAT or EIT? An evaluation of the tax policy in northeast China. Finance & Trade Economics, 2017,(6):5-16,114. (In Chinese)
[5] Liu Z Q, Sheng D. RMB exchange rate markup dispersion and resource allocation in Chinese manufacturing industry[J], Journal of Financial Research,2017,(7):1-15. (In Chinese)
[6] Luo W, Ge S Q, Foreign direct investment and R&D:Empirical evidence from China[J],The Journal of World Economy, 2015, (12)：29-53. (In Chinese)
[7] Lv B Y, The essence of tax reduction is to improve the efficiency of resource allocation[N],Beijing Daily,2016-07-01(003). (In Chinese)
[8] Nie H H, Fang M Y, Li T. The impact of VAT on enterprise behavior and performance—An example of northeast China[J], Management World, 2009,(5):17-24,35. (In Chinese)
[9] Nie H H, Jia R X. Productivity and resource misallocation in China's manufacturing sector[J], The Journal of World Economy, 2011,(7):27-42. (In Chinese)
[10] Sheng D, Liu C L. Can external regulation improve the performance of state-owned enterprises?[J], Economic Research Journal, 2016(10):97-111.
[11] Shen G J, Chen B K, Yang D R. Can tax-reduction boost economy in China?—An empirical study based on China’s value-added tax reform[J], Economic Research Journal, 2016,(11):70-82. (In Chinese)
[12] Shen G J, Wang R, Zhang. Structural tax reduction and the labor income share—Distributional effects of VAT reform[J], Economic Science, 2018,(3):61-74. (In Chinese)
[13] Xu W, Chen B K, Tax incentives and firm investment—A natural experiment based on the VAT reform from 2004 to 2009[J], Management World, 2016(5):9-17. (In Chinese)
[14] Bernard A B, Eaton J, Jensen J B, et al. Plants and productivity in international trade[J]. American Economic Review, 2003, 93(4):1268-1290.
[15] Bertrand M, Duflo E, Mullainathan S. How much should we trust differences-in-differences estimates?[J]. The Quarterly Journal of Economics, 2004, 119(1):249-275.
[16] Brandt L,Van Biesebroeck J, Zhang Y F. Creative accounting or creative destruction? Firm-level productivity growth in Chinese manufacturing[J]. Journal of Development Economics, 2012, 97(2):339-351.
[17] Cai H B, Liu Q, Xiao G. Does competition encourage unethical behavior? The case of corporate profit hiding in China[J]. Economic Journal, 2009, 119: 764-795.
[18] Cai J, Harrison A E. The value-added tax reform puzzle[R]. NBER Working Papers 17532, 2011.
[19] De Loecker J, Warzynski F. Markups and firm-level export status[J]. American Economic Review, 2012, 102(6):2437-2471.
[20] Djankov S, Ganser T, Mcliesh C, et al. The effect of corporate taxes on investment and entrepreneurship[J]. American Economic Journal: Macroeconomics, 2010, 2(3):31-64.
[21] Edmond C, Midrigin V, Xu D Y. Competition, markups, and the gains from international trade[J]. American Economic Review, 2015, 105(10). 3183-3221.
[22] Feenstra R C, Li Z Y, Yu M J. Export and credit constraints under incomplete information:Theory and evidence from China[J]. Review of Economics and Statistics,2014, 96(4):729-744.
[23] Holmes T J, Hsu W T, Lee S. Allocative efficiency, mark-ups, and the welfare gains from trade [J]. Journal of International Economics, 2014, 94(2):195-206.
[24] Hsieh C T, Klenow P J. Misallocation and manufacturing TFP in China and India[J]. Quarterly Journal of Economics, 2009, 124(4):1403-1448.
[25] Lerner A P. The concept of monopoly and the measurement of monopoly power[J]. The Review of Economic Studies, 1934, 1(3):157-175.
[26] Levinsohn J, Petrin A. Estimating production functions using inputs to control for unobservables[J]. Review of Economic Studies, 2003, 70(2):317-341.
[27] Liu Q, Lu Y. Firm investment and exporting: Evidence from China's value-added tax reform [J]. Journal of International Economics, 2015, 97(2):392-403.
[28] Lu Y, Tao Z G, Zhu L M. Identifying FDI spillovers[J]. Journal of International Economics, 2017, 107:75-90.
[29] Lu Y, Yu L H. Trade liberalization and markup dispersion: Evidence from China's WTO accession[J]. American Economic Journal Applied Economics, 2015, 7(4):221-253.
[30] Olley G S, Pakes A. The dynamics of productivity in the telecommunications equipment industry[J]. Econometrica, 1996, 64(6):1263-1297.
[31] Peters M. Heterogeneous mark-ups, growth and endogenous misallocation[R]. LSE Research Online Documents on Economics 54254, 2013．
[32] Syverson C . Product substitutability and productivity dispersion[J]. The Review of Economics and Statistics, 2004, 86(2):534-550.
[33] Topalova P. Factor immobility and regional impacts of trade liberalization: Evidence on poverty from India[J]. American Economic Journal Applied Economics, 2010, 2(4):1-41.
[34] Wang D. The impact of the 2009 value added tax reform on enterprise investment and employment ‐ Empirical analysis based on Chinese tax survey data[R]. MERIT Working Paper 059, 2013.
[35] Zhang L, Chen Y Y, He Z Y. The effect of investment tax incentives:Evidence from China’s value-added tax reform[J]. International Tax and Public Finance,2018, 25(4):913-945.
Cite this article
Kang Maonan, Mao Kailin, Liu Canlei. Value-Added Tax Reform, Markup Dispersion and Resource Allocation[J]. Journal of Finance and Economics, 2019, 45(2): 4-16.
Export Citations as:
For
ISSUE COVER
RELATED ARTICLES
