A Research On The Mechanism Of Tax Rebate System's Influence On The Exchange Rate Of RMB

Taxation rebate is a mechanism that entitles the enterprises or companies, based on the laws and regulations of a country, to get back some indirect tax from the government after exporting their products, value added tax and excise tax for example, so that they could sell their products in the international market at a more competitive price. Generally, the mechanism is implemented in the hope that the export sales of the whole country would be improved, and the macro economic condition could be ameliorated as a result.China has been applying this policy since the 1950's. In the past ten years, it plays an important role in promoting the China's economic growth. In recent times, however, the increasing trade surplus, together with the rising foreign exchange reserves, have caused sever pressure on the appreciation of RMB. Under such circumstance, on October 2003, the State Taxation Administration has announced"Notice of the Ministry of Finance and the State Administration of Taxation on Adjusting the Export Rebate", expecting that this new regulation would improve the structure of exporting commodities, and lessen the pressure of RMB appreciation. Since it has been implementing for more than two years, now it is of great significance to study the effects of this policy.Based on the reasons above, I conduct a research on the relationship between export rebate and RMB appreciation. And this paper consists of five chapters. Chapter one is introduction. Chapter two reviews the theories of taxation rebate. In chapter three I try to probe into the relationship between taxation rebate and the exchange rate of RMB, and conclude that theoretically, the decrease of taxation rebate rate would lead to the declining pressure of RMB appreciation. However, in an empirical analysis, I do not find significant causal relationship between taxation rebate and the exchange rate of RMB, which I represent in Chapter four. It could be explained by the surplus in capital account. In Chapter five I give my suggestions as to modifying the taxation rebate system in order to decrease the pressure of RMB appreciation.