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| Can Increasing the Export Tax Rebate Stabilize Employment and Foreign Trade? |
| WANG Junbin, LIU Hebei
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School of Public Finance and Taxation, Southwestern University of Finance and Economics;
Maritime Silk Road and Guangxi Regional Development Institute, Guangxi University of Finance and Economics |
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Abstract In recent years, trade protectionism has increased globally, exacerbating trade frictions between countries, such as those between China and the United States. To cope with these adverse effects, the Ministry of Finance and the State Taxation Administration of China have successively increased the export tax rebate for some products. Meanwhile, employment and foreign trade are major issues in China's economy. Therefore, exploring the effect of China's export tax rebate policy on employment and foreign trade is of great theoretical and practical significance. Taking Sino-US trade friction as an example, this paper examines the mechanism by which China's export tax rebate policy stabilizes employment and foreign trade and how it mitigates trade friction using dynamic stochastic general equilibrium (DSGE) model.
First, this paper studies the cyclical characteristics of China's employment and net exports. Quarterly data from 1994 to 2020 show that employment is relatively stable. However, net exports are highly volatile. China's employment and net exports have weak procyclical characteristics that are significantly different from other countries and the simulation results of other DSGE models in the literature. Second, to explain the cyclical characteristics of China's employment and net exports, this paper constructs a symmetrical two-country open-economy DSGE model with an incomplete financial market and incomplete price pass-through. Using macro data from China and the United States to calibrate the model, the numerical simulation shows that the model better fits the cyclical characteristics of China's employment and net exports under the shock of domestic export tax rebates and other countries' technology shock. The wealth and expenditure transfer effects caused by the change in terms of trade are the main internal transmission mechanisms.
To clarify the mechanism of the export tax rebate effect, this paper uses Sino-US trade friction to conduct a counterfactual experiment to explore whether increasing the export tax rebate can stabilize employment and foreign trade. The simulation shows that when China unilaterally increases its export tax rebate by 1%, employment increases by 0.05%, and net exports increase by 0.28% and then decrease gradually, showing strong persistence. Increasing the export tax rebate can stabilize employment and foreign trade. A 1% increase in both China's export tax rebate and the United States' import tariff increases employment in China by 0.03% and net exports by 0.16%, and then employment and net exports decrease gradually and show strong persistence. Lerner neutrality is not established. Although the effect of the export tax rebate in stabilizing employment and foreign trade is currently weakened, it remains effective. Therefore, China's export tax rebate policy not only completely offsets the adverse impact of other countries' tariff increased on China's employment and net exports, but also produces a positive net effect. Although the net effect of increasing the export tax rebate is small, it indeed helps stabilize employment and foreign trade. Furthermore, the Bayesian estimation method proves that this conclusion is robust.
This paper makes two contributions to the literature. First, it expands the literature on the cyclical characteristics of China's employment and net exports. The two-country open-economy model in this paper not only explains these cyclical characteristics but also explores the internal mechanism of the effect of China's export tax rebate policy. Second, the two-country open-economy model can simulate and evaluate the effect of China's increasing export tax rebate on stabilizing employment and foreign trade in various circumstances.
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Received: 24 July 2019
Published: 01 January 2022
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