DP12786 The Dynamic Effects of Computerized VAT Invoices on Chinese Manufacturing Firms

Author(s): Haichao Fan, Yu Liu, Nancy Qian, Jaya Wen
Publication Date: March 2018
Keyword(s): economic development, Firm Growth, state capacity, taxation, technology
JEL(s): H25, H26, O12
Programme Areas: Public Economics, Development Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12786

This paper uses a balanced panel of large manufacturing firms to study the dynamic effects of computerizing VAT invoices on tax revenues and firm behavior in China, 1998-2007. We find that computerization explains 10.8% of cumulative VAT revenues and increases the effective average tax rate by approximately 9-12% in the seven subsequent years. The evidence suggests that the effects of computerization change over time: tax revenue gains are likely to be smaller in the long run. Meanwhile, firms reduce output and input, and increase productivity monotonically over time.