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An Empirical Study on the Price Effect of Export Tax Rebate Rate Adjustment

Zhang Hanyuan;Wang Zhe;  
The Chinese government decided to adjust Export Tax Rebate Rate( ETR hereafter) of more than 1000 basic products in a notice posted online on December 31,2014. Based on this notice,we investigate the impact of ETR adjustment on export prices of Chinese products using"difference-in-difference"( DID hereafter) method and Chinese export price index of 2-digit HS products from January 2014 to December 2015. First,we develop a simple theoretical model to show the mechanism by which ETR adjustment might affect export price. From the model,we demonstrate that increases in ETR will lead to downward adjustment of export prices by exporters. In our basic regression,we find that Chinese export price index decreases on average by 1. 38 percentage points within a year after the official upward adjustment of ETR,which is consistent with our theoretical prediction. In addition,we conduct several robustness analyses,showing that the impact of ETR adjustment on export price index is not significant in the short run,but as we extend the horizon to 12 months,it grows significant,larger,and then smaller again.
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