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Regional Effects of Export Tax Rebate on Exporting Firms: Evidences From China

Tan, Yong and An, Liwei and Hu, Cui (2015): Regional Effects of Export Tax Rebate on Exporting Firms: Evidences From China.

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Abstract

In this paper, we extend the model of Melitz (2003) to separate the direct and indirect impact of an export tax rebate on the intensive margin of firm-level export sales at the sub-national level. The direct impact of the rebate is associated with a reduction of an exporting firm’s variable costs, while the indirect impact manifests itself through higher regional wages as a result of increased demand for local labor. First, the empirical results imply that a 1% rise in the export tax rebate rate increases the export sales among continuing exporters by 0.4% through the direct channel. Second, the same rebate increase reduces export sales among continuing exporters by 0.02% through indirect channel. Both effects are statistically significant, and are consistent with the model's predictions.

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