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The Effects of "Business Tax Replaced with VAT Reform" on Firms' Tax:Cut and Industrial Division
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TitleThe Effects of "Business Tax Replaced with VAT Reform" on Firms' Tax:Cut and Industrial Division  
AuthorFan Ziying and Peng Fei  
OrganizationShanghai University of Finance and Economics; Huazhong University of Science and Technology 
Key WordsBusiness Tax Replaced with VAT Reform; Industrial Linkage; Tax Cut; Industrial Division 
AbstractThe "Business Tax Replaced with VAT Reform" is the most important reform since 1994, which can reduce the corporate tax burden and deepen the industrial division which two requirement: strong Input-output connections with upward industries and VAT system. Using China input-output table data of 135 industries, this article calculates the industrial linkage between services and upward industries, match the industrial linkage with the micro-level data of Chinese listed firms, and then estimate the impacts of Chinese business tax replaced with VAT reform on firms’ tax cut and industrial division by difference-in-difference-in-difference identification. The result reveals that the reform effect depends delicately on the industrial linkage and VAT rates of upper industries, and only companies of a certain industrial linkage have tax cut and division effect. We also find that the VAT reform can promote the cross-regional division cooperation effectively because of service sector firms can deduct the tax from intermediate inputs. Our research has direct implications for perfecting tax reform, such as setting the tax rates, definition of policy boundaries, and policy implementation procedures, etc. 
Serial NumberWP1167 
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