The Impact Of The Export Tax Rebate On The International Competitive Advantage

Under the economic globalization, the equilibrium of the market is decided byvarious factors of demand and supply. The structural or impacting fluctuations ofthese factors make the world economy show a degree of business cycle. In order tomaintain the steady development of foreign trade, reduce the impact of internationalmarket fluctuations on the domestic economy, the government often adopts policyinstruments to intervene the market equilibrium. The international trade theory andlong-term economic practice provide a number of export-oriented policies formacro-control. However, as the developing of world economic globalization andliberalization, most of these trade-promoted policies are limited by the internationalorganizations. Against this background, the government interferences shift fromdirect intervention to indirect intervention. As one of the indirect intervention, exporttax rebate is highly valued by the governments. At the same time, belonging to the taxsystem and trade system, the export tax rebate system has become an importantcomponent of macro-control in China.From the second half of2008, China’s foreign trade suffered a sharp decline inthe world economic crisis. The import and export exhibited negative growth forseveral months. Particularly, export volume of light industrial products and electronicproducts in which China keeps a long-time international competitive advantagecontinued to decline. In response to the economic crisis, China government employeda variety of positive-control measures synthetically. The export tax rebate rate isincreased for7times from August2008to June2009. The export tax rebate rate ofsome mechanical and electrical products, such as the sewing machine, CRT TV andtelevision transmission equipment, is rose to17%which is almost the level of full taxrebate; the export tax rebate rate of light industrial products, such as textile, clothing,is rose to16%which is one percent less than the maximum refund.China’s economy has recovered from the crisis gradually under the combinedeffect of a variety of macro-control policies. However, in the short-term, the prospect of the European debt crisis is still uncertain; the recovery of the U.S. economyprogresses slowly and the unemployment rate is kept in a high level; the demand ofthe emerging market countries shrinks which is caused by the imported inflationunder the quantitative easing and implicit quantitative easing policies of thedeveloped countries. These factors, superimposing on each other, will form a newround of attacks to China’s export. Meanwhile, in the long-term, experiencing thiscrisis most of the countries begin to reconsider the current pattern of the worldeconomic structure. The developed countries pay more attention to the producingindustries. The developing countries search for a new growth point in the future worldeconomy. Taking this crisis as an opportunity for China should change the extensivemode of export, accelerate optimizing and upgrading export product structure,improve the international competitive advantage of exports effectively, laid a steadyfoundation for the next round of global economy expanding.According to the current situation, a systemic and normative study on the exporttax rebate policy is required by the developing of international trade, the reducing ofthe trade frictions, the adjusting of the export products composition, the optimizing ofthe industrial structure, and the improving of the national welfare. Therefore, takingthe export tax rebate policy as the thread and the subject,this dissertation discussedthe impact of the export tax rebate to the international competitive advantage of theexport products. In a broad sense, this thesis is also an approach to the sustainableeconomic development of China. We build up models for different market structures,and obtain the optimal export tax rebate rate from the aspect of the national welfaremaximization. The impact of the export tax rebate on the international competitiveadvantage is determined on mathematical analysis. Then, the theoretical conclusionsare checked by using the economic data from1978to2010.Our study consists of six chapters: the first chapter is an introduction includingthe writing background, the significance of the topic, the status quo, the researchroute and method. Chapter II to Chapter V is the main part of this research. Based oncurrent research results, the second chapter deepens the theory of the export tax rebate.The effect of export tax rebate policy is analyzed under four aspects that are theminor trading nation in perfect competition, the major trading nation in perfect competition, the Cournot competition and the Bertrand competition. Under eachaspect, the impact of the export tax rebate policy on the international competitiveadvantage is discussed. After that, the rationality of the export tax rebate policy isexpounded from the view to maximize the national welfare. Then the motivation ofthe government using the export tax rebate policy is clarified. The third chaptersummarizes the practical experience of China. According to the issue of the relevantdomestic laws and regulations, the development of the export tax rebate system isdivided into three stages. Meanwhile, the international experiences, such as thepractice of France, Germany, Korea etc., are compared. Chapter IV is a basic analysisof China’s export trade and the international competitive advantage of products. Inthis chapter, the scale of Chinese foreign trade, the trade direction, the exportstructure, the market distribution is described. Further, by using the relevant indexes,the international competitive advantage of Chinese exports is tested quantitatively.Based on the theoretical and empirical analysis, we select some proper econometricsmethods. The impact of the export tax rebate on the international competitiveadvantage is measured in Chapter V. Finally, Chapter VI contains the mainconclusions and policy suggestions.We draw following conclusions through the mathematical and empirical analysis:on the theoretical side, the changes in the export of the minor trading nation in perfectcompetition will not influence the world equilibrium price obviously. Thus, when thegovernment uses the export tax rebate policy to promote the international competitiveadvantage of domestic products, the negative effects caused by this policy are low. Bythis reasoning, the minor trading nation can use the export tax rebate policy toenhance the international competitive advantage of domestic products as while asimprove the national welfare. However, the circumstances for the major tradingnation in perfect competition are different. The negative effects caused by the exporttax rebate policy are significantly increasing through the price mechanism. The exporttax rebate policy of a major trading nation will enhance the international competitiveadvantage of domestic products observably. However, the world equilibrium pricewill decrease which is due to the large amount of domestic export products.Compared with the minor trading nation, the effect of the export tax rebate policyconsists of two parts, one is the profit increase caused by the internationalcompetitive advantage enhancing, and the other is profit lost because of equilibriumprice reducing. Thus, the optimal export tax rebate rate depends on the balance ofthese positive and negative effects. In the imperfect competition market, if firms rivalas the model of Cournot competition, the home government could implement theexport tax rebate policy to reduce the marginal cost of production, and improve theinternational competitive advantage of domestic product. Nevertheless, the effects onthe national welfare are also constrained by the property of the demand function. Thehome government should combine with the characteristics of the world demand todecide whether to implement the export tax rebate policy or not.The result of theBertrand competition is special. The equilibrium of the model is a corner solution.The impact of the export tax rebate policy on the international competitive advantageis a discrete distribution.On the empirical side, overall, the impact of the export tax rebate policy on theinternational competitive advantage is positive. The policy could enlarge theinternational market share of domestic products. Meanwhile, the positive effect isenhancing when the export develops. Next, we test the effect of the export tax rebatepolicy by the SITC classification. The influence on the international competitiveadvantage depends on the long-term policy orientation, the factor intensity ofproducts and the market structure. Finally, the effect on the product level is calculated.The international competitive advantage decreases observably when the export taxrebate rate is reduced. This result from the opposite direction proves the conclusion oftheoretical analysis, and exhibits that the impact of the export tax rebate on theinternational competitive advantage is remarkable particularly the perfect competitionmarket.