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The Oxford Companion to the Economics of China$
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Shenggen Fan, Ravi Kanbur, Shang-Jin Wei, and Xiaobo Zhang

Print publication date: 2014

Print ISBN-13: 9780199678204

Published to Oxford Scholarship Online: December 2014

DOI: 10.1093/acprof:oso/9780199678204.001.0001

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Using tax-based instruments for innovative China’s trade rebalancing

Using tax-based instruments for innovative China’s trade rebalancing

Chapter:
(p.145) 21 Using tax-based instruments for innovative China’s trade rebalancing
Source:
The Oxford Companion to the Economics of China
Author(s):

John Whalley

Jing Wang

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199678204.003.0022

This chapter proposes the use of tax-based initiatives to address China’s trade imbalance as well as alleviate exchange rate pressures. The proposal made here is that if China were to switch its value added tax (VAT) regime from the current destination basis (DB) to an origin basis (OB), the effect would be both to significantly reduce its trade imbalance and increase China’s and the world’s welfare. This effect reflects the feature that, under a VAT destination basis, imports are taxed while input taxes are rebated (as currently), while under an origin basis, imports enter tax free but exports receive no tax rebate.

Keywords:   tax policy, taxation, value added tax, trade imbalance, exchange rates, import tax

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