The Effect of China's Export VAT Rebate on Intermediate Input Imports

This dissertation studies empirically and theoretically the effects of China’s export value-added tax (VAT) policy on its firm-level and aggregate exports and imports. Between 2004 and 2007, China sharply reduced the export VAT rebate given to exporters, raising the effective export VAT rate by about six percentage points. In the empirical chapter, using firm-product-level data, I assess the effects on the intensive and extensive margins of firm-product-level imports. I find that a higher export VAT significantly decreases big firms’ extensive and intensive margins of imports. In addition, I document that most of the change in import growth at the aggregate level occurred at the extensive margin. In the theoretical chapter, to better understand the findings from the empirical part, as well as examine the welfare consequences, I develop a multi-country heterogeneous-firm model of imported input sourcing and exporting. In the model, monopolistically competitive firms choose their export destinations, as well as their import sources, with both subject to variable and fixed costs. To validate my model, I conduct a simulation of a higher export VAT. I find that the results for imports and exports at the firm level and in the aggregate are consistent with my empirical findings.