Value-added Tax Reform and Services Exports: Evidence from China

In 2012, a sales tax was replaced in China by a value-added tax (VAT). The effect of this change on services exports is evaluated in this paper. VAT reform was introduced across provinces and service sectors at different times, so we can identify the impacts of VAT reform on firms’ export behavior by utilizing a difference-in-difference-in-difference (DDD) estimation methodology. We find that VAT reform significantly increases service exports, in both intensive and extensive margins. The export enhancing effects are larger for non-state-owned enterprises, and for firms of larger scale and higher productivity levels. VAT reform alleviates tax magnification and double taxation, and effectively promotes the competitiveness of China’s services exports