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This paper studies the employment and wage effects of VAT rebates to exporters with comprehensive firm-product-level data of China. It is found that the adjustments in VAT rebates significantly and positively affect firm’s employment but have no statistically significant effect on firm’s wage. Moreover, this paper finds that the employment effect of VAT rebates is heterogeneous across firms. In particular, low-productivity firms are more sensitive to the adjustments of VAT rebates than high-productivity firms, suggesting that an increase of VAT rebates may cause mis-reallocation of resources.

This paper studies the impact of export VAT rebates on firm productivity with Chinese firm‐product‐level data. We find that higher VAT rebates significantly raise firm productivity. The results are robust to various estimations of firm productivity. Moreover, this paper finds that the impact of export VAT rebates on firm productivity is significantly different across firms and sectors. More specifically, our results suggest that the impact is mainly driven by firms with small export intensive margins and large export extensive margins, new exporters, financially constrained firms and low‐productivity firms. Furthermore, in high‐tech sectors, the impact is significantly large with a one percentage point increase of firm rate of VAT rebates nearly raising firm productivity by 6%.

Firms can be split into non-exporters, ordinary exporters, and pure exporters where pure exporters have been somewhat overlooked. We study how the presence of pure exporters can be rationalized in a theoretical model and how they influence economic performance. In our model, on average pure exporters are less productive than ordinary exporters. As a consequence, the productivity premium of exporters in the presence of pure exporters is lower than the premium in the absence of pure exporters. Moreover, if there is a large portion of pure exporters, then international trade lowers the average productivity.To allow for the existence of pure exporters, we extend the basic Melitz (2003) model by introducing heterogeneity in productivity as well as in both entry cost and demand in foreign markets. What is