Export tax rebates, product ranking, and exports of multi-product firms

Abstract

Product-level differentiated export tax rebates may affect product preferences in the export decisions of multi-product firms. However, prior studies focus primarily on export tax rebates’ impact at the product or firm level while ignoring the effect on firm-product export behaviors. Based on the adjustment of China’s export tax rebates, this study fills this gap by analyzing firm-product-destination-time high-dimensional data from 2002 to 2013. We find that an increase in the export tax rebate rate promotes the expansion of export quantity at an intensive margin and this effect increases as product ranking falls. Furthermore, it also promotes the expansion of the number of export destinations at an extensive margin. Additionally, we rationalize the results by introducing a multi-product firm theoretical framework with a “staircase” constant elasticity of substitution utility function. The findings highlight the significant tax-trade relationship and sheds light on the role of tax system in influencing multi-product firms’ exports.