1. VAT Rebate Policy and Export Performance: a Case Study of China’s Mechanical Goods Industry
WANG LITAN
Associate Professor
Shanghai Lixin University of Accounting and Finance

2. CONTENTS Introduction An Econometric Model Methodology and Data1
Introduction 2
An Econometric Model 3
Methodology and Data
CONTENTS 4
Empirical Results and Discussion 5
Endogeneity Test and Robust Test
Conclusion Remarks 6

3. 01
Introduction

4. Within the Feldstein and Krugman (1990) framework
A VAT system where full rebate on exports is not available is akin to an export tax.
Raising the VAT rebate rate helps reduce the negative effects from export tax.
A positive relationship between the VAT rebate rate and export performance.

5. Some empirical studies
1. Chandra and Long (2013) find raising the VAT rebate rate has significant and positive effects on export volume.
2. An et al. (2017) find a 1 percent rise in the export tax rebate rate increases the export sales among continuing exporters by 0.2 percent through the direct channel. 
3. Han et al. (2015) find the reduction of export tax rebate causes contraction of product scope.

6. A Case of mechanical goods
On Jan. 1, 2015, China’s government raised the VAT rebate rate for mechanical exports from 15% to 17%.

7. Our Questions 
1.Why did mechanical exports experienced a contrary case for existing findings? Why did not mechanical exports rose?
2.How can we interpret this phenomenon?
3.What mechanisms are the effects of the VAT rebate policy on the export performance ?

8. Our Interpretation  
1.The aggregate demands (qt) in international market are basically stable.
2. Firms are the price –taker in global market.
3. Raising the VAT rebate rate will reduce the marginal cost of exports, further reduce the export price (pt) of goods.
Then we have this logic as follows, 

9. ↓ Our Theory Raising the VAT rebate rate A Reduction of export price
Unchanged aggregate demands (qt) ↓

10. 02
An Econometric Model

11. A Dixit-Stiglitz type models“
(1)

12. The representative firm maximizes its profit“
(2)

13. Considering the VAT rebate policy“
(3)

14. We assume the equation , when .
Considering the VAT rebate policy “
(4)
We assume the equation , when

15. We assume foreign aggregate demands, C, is fixed.
The constraint conditions of firms. “
(5)
We assume foreign aggregate demands, C, is fixed.

16. We assume foreign aggregate demands, C, is fixed.
Constructing a nonlinear dynamic system. “
(6)
We assume foreign aggregate demands, C, is fixed.

17. With Lagrange principals, Kuhn-Tucker Theorem and some algebra, we have the price of exports.“
(7)

18. To capture the relationship between export performance and VAT rebate rate.“
(8)
Where is the total export volume of the representative firms and

19. . “
So we can draw a conclusion from theoretical model that raising the VAT rebate rate have a negative effects on the export volume.

20. 03
Methodology and data

21. Methodology and Empirical Model Data and Variable Measurement
Methodology and data
Methodology and Empirical Model
Data and Variable Measurement

22. Three advantages of Propensity Score Matching (PSM)
Methodology and data
Three advantages of Propensity Score Matching (PSM)
Reducing the severity of potential endogeneity
Estimating both the average treatment effect (ATE) and the Average Treatment Effects on the Treated (ATT)
Improving the robustness by resampling

23. The empirical estimated equation is as follows:
Methodology and data
The empirical estimated equation is as follows:

24. Data and variable measurement
Data and Statistics
Data over the September 2012 to April 2017 from China’s mechanical industry
Panel data covering 27 provinces and 4 cities.
Data drawn from China Custom Statistics Monthly

25. Data and variable measurement
Data and Statistics
Table 1: the Summary Statistics of Main Variables
Data Sources: China Custom Statistical Monthly, CEInet Statistics Database,China Statistical Yearbook on Science and Technology. The data are sorted by the authors.

26. Empirical Results and Discussion04
Empirical Results and Discussion

27. Empirical Results

28. Endogeneity Test and Robust Test05
Endogeneity Test and Robust Test

29. Endogeneity Test

30. Robust Test
Notes. For the sake of brevity, Table 3 reports only the results of ATE and ATT, and don’t report the results of other variables; Data is from China Custom Statistics Monthly, CEInet Statistics Database. China Statistical Yearbook on Science and Technology, State Administration of Foreign Exchange, and sorted by author;
***, **, and *, respectively, denote significance at the 1%, 5% and 10% level.

31. Concluding remarks
In this paper, we try to interpret this phenomenon that raising the VAT rebate rate decrease the export performance by using a theoretical model and evaluating the effect of VAT rebate on export performance for mechanical industry:
We find that raising VAT rebate rate decreases the export prices as well as export quantities.
For each percentage point increase in the average VAT rebate rate, the mechanical exports will decrease by 2.07% on average. . “

32. Concluding remarks Some caveats are in order :
These results do not necessarily suggest inefficiency of China’s trade policy.
Further analysis using more policy experiments is highly desirable.
Further researches on more other industries are required

33. THANK YOU LITAN WANG Associate Professor
Shanghai Lixin University of Accounting and Finance
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