Export Incentive Effects Of Tax Rebate Policy Under Fluctuating Foreign Demand

The breakout of the global economic crisis in2008reversed the continuous growth of China’s export in recent decades. Faced with the great difficulties that the shrinking foreign demand has brought to China’s export, the Chinese government adjusted the tax rebate rate accordingly for several times and differentiated the rebate rate among export products, in order to put more emphasis on optimizing the industrial structure on the basis of strengthening the support for export. Many scholars have studied the effects of tax rebate policy; however, it should be noticed that different external environments will affect the policy’s incentive effects. It is of great importance for the government to analyze the distinction and then adjust the tax rebate policy. This paper first reviews the development, the status quo, and existing problems of the tax rebate policy. After analyzing the policy effects on China’s export under different external conditions by employing the Partial Equilibrium Theory and the Bertrand Competition Model, this paper uses the panel date to make an empirical analysis of the incentive effects of China’s tax rebates, respectively from the long-term and the short-term, and in terms of overall exports and different industries. Relevant conclusions and suggestions come after that.This paper finds that, in the long term, tax rebates, domestic output, and exchange rate all significantly promote China’s export, while the correlation between foreign demand and export is relatively weak. It is the growth of domestic output, instead of foreign demand transfer, that leads to the prosperity of China’s export in recent years. Meanwhile, the policy effects of tax rebates differ in periods, and the policy shows stronger influences in the crisis period. In the short run, tax rebates, domestic output, foreign demand, and exchange rate all play a great role in boosting export, with foreign demand as the most influential factor. From the perspective of different industries, exchange rate and domestic output have positive influences in all industries, among which primary products are the most influenced. In contrast, tax rebates only affect low-tech, medium-tech, and high-tech products, with a stronger influential power as the technological content of products increases. This finding suggests that considering the different reactions among industries, the government should optimize the industrial structure and the allocation of resources by differentiating the rebate rates. Based on the conclusions above, the paper finally provides relevant suggestions for policy-makers.