BT-to-VAT reform and firm productivity: Evidence from a quasi-experiment in China |
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Institution: | 1. School of Economics and Trade, Hunan University, No.109 Shijiachong Road, Yuelu District, Changsha, Hunan 410006, China;2. School of Public Finance and Taxation, Zhongnan University of Economics and Law, No.182 Nanhu Avenue, Donghu New Technology Development Zone, Wuhan, Hubei 430073, China |
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Abstract: | China recently initiated a major tax reform to convert business tax to value-added tax (BT-to-VAT reform), which opened up the tax deduction chain between industries. We used difference-in-differences model and an administrative firm-level dataset from 2011 to 2017 to explore the effect of BT-to-VAT reform on productivity. We found that in contrast to control firms, this reform increased the productivity of the treated firms by 14.6% on average. The positive effects tended to be strengthened in private, large-scale, and capital-intensive firms, as well as in firms with tight financing constraints. Moreover, these positive results of the BT-to-VAT reform appeared to be driven by its positive effect on fixed asset investment, R&D expenditure, and specialization. These findings demonstrate the transformation of tax system has multiple economic effects in developing countries. |
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