VAT rate dispersion and TFP loss in China's manufacturing sector

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Abstract

The paper studies dispersion in the effective VAT rate, a directly measurable distortion, across manufacturing firms in China and assesses its impact on aggregate production efficiency through misallocation from 2000 to 2007. Using a model based on Hsieh and Klenow (2009), I find that a revenue-neutral tax reform which eliminates the dispersion in VAT rates alone produces a gain in aggregate TFP in the order of 7.9% of GDP on average in the period 2000 to 2007.

Original languageEnglish
Pages (from-to)49-54
Number of pages6
JournalEconomics Letters
Volume155
DOIs
Publication statusPublished - 1 Jun 2017

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