Does value-added tax reform increase the sophistication of enterprise exports? Evidence from China

Abstract

Value-added tax (VAT) is a neutral tax widely adopted around the world that is conducive to easing the tax burden of central and local governments and promoting enterprise innovation. Using the micro-data of China's industrial enterprises from 2000 to 2007,this paper takes the VAT reform in Northeast China as a quasi-natural experiment to explore the impact of reform on the export sophistication of enterprises. This study reveals that the VAT reform increases the sophistication of enterprises' export, and the influence of reform on the export sophistication is found to be insignificant not only for state-owned enterprises but also for medium and low-tech sectors’ enterprises. Moreover, the mechanism analysis shows that the VAT reform stimulates the vitality of enterprise innovation and increases investment in R&D, thereby increasing the sophistication of exported products. The research in this paper is helpful not only for deepening our understanding of the significance of VAT reform but also for further improving policy measures to promote the high-quality development of export trade. JEL:H25,P25,D22