Tax Reform,Industrial Division And Urban Development:a Case Study Of "Business Tax Replaced With Vat Reform"

China have established a tax system of value added tax(VAT)for manufacture and business tax for services since tax sharing reform in 1994,which effectively guaranteed gover-nment's tax revenue and eased financial dilemma of central government in 1990s.However,the coexisted two tax system exposes more and more malpractices,such as it is not conducive to industrial division,for increasing the hidden costs of product trade between manufacture and services.In addition,it also has a serious problem that double taxation during the production and the sale,and is harmful for cross-regional cooperation under the located management of business tax system.China aims to transform business tax into value-added tax(VAT Reform)since January 1st 2012 to remedy the situation fundamentally,and it is of great and practical significance to avoid double taxation,deepen social division of labor,and finally promote the economic growth."Thirteenth Five-Year Plan" puts forward many reform measures which includes accelerates the paces of urbanization based on institutional innovation and completes the VAT Reform,In this background,tax reform with its core of VAT Reform can promote the development of urbanization when the reform achieve the goal of promoting the upgrading the industrial structure.Therefore,we aim at studying the impacts of reform on urban development,which is a core issue that we focus on.Specifically,several interest findings stand out.Firstly,whether VAT Reform can reduce corporate tax burden and deepen the industrial division is our focus and theoretical foundation of this article.In theory,the realization of the tax burden reduction effect depends on two key elements.On the one hand,the pilot sectors'industrial linkage with upper industries should be close enough.In other words,the service industry should have enough intermediate input.On the other hand,the upper industries should be entitled to taxpayer of value-added tax,thereby achieving the input tax deduction.Therefore,using China input-output table data of 139 industries,this article calculates the industrial linkage between services and upper industries and matches the industrial linkage with the micro-level data of Chinese listed corporations from 2009 to 2014.Then we estimate the impacts of VAT Reform on firms' tax reduction and industrial division by difference-in-difference-in-difference identification.We find that the effect rely delicately on the industrial linkage and.VAT rates of upstream industries,only firms with a certain industrial linkage have tax cut and division effect,and the effect is positively correlated with the industrial linkage:We conclude that the VAT reform can promote the cross-regional cooperation effectively because of service sector firms can deduct the tax of intermediate inputs.We also conclude that the VAT reform can boost the growth of equipment investment and further promote the development of technology.Secondly,reasonable tax reform is an important drivers of sustained economic development.It is urgent to explore whether the VAT Reform can inject fresh impetus into the"new normal" economy of China,to solve structural defects,such as imbalance between supply and demand,and reducing efficiency.In this context,this paper employs China's VAT Reform as an exogenous shock and based on the framework of upstream and downstream industries linkage to identify the impacts of VAT Reform on firm's export performance and productivity by difference-in-difference-in-difference identification.The result shows that due to the decreasing costs of export,the reform has a significant impact on the firm's export earnings and profits with sufficient industries linkage,but limited effect can be found in the probability of export.Further research shows that the reform can promote the development of corporate productivity effectively in the R&D and IT industries,but can't be found in the transportation,state-owned enterprise,government subsidies and financing constraints.Thirdly,the service industry will share the tax system with the manufacturing industry after the VAT Reform.This will smooth the tax credit of industrial chain,and then influence the manufacturing industry by the industrial chain which has forward and backward linkages with services,even if manufacturing does not apply to the VAT Reform.Based on the micro data of industrial enterprises in China from 2009 to 2013,and using China input-output table data of 139 industries,this article calculates the backward linkages and forward linkages between manufacturing industry and service industry,and then reveals the impacts of VAT Reform on corporate performance of China's manufacturing.We find that VAT Reform significantly improved firms' performance of manufacturing industry,especially for those that have higher backward linkages or forward linkages with service industry.In other words,the reform's effects rely on the industrial division between services and manufacturing industry.Finally,industrial structure upgrading is regard as an important prerequisite and characterization of urban development.We utilize calibrated DMSP/OLS satellite data as a proxy for urban development of prefecture level cities in China to avoid the traditional statistics that are hard to quantify and noises in DMSP/OLS original data.Then,we regard pilot reforms in different areas as natural experiments in this paper,and estimate the impacts TV of VAT Reform on urban development with difference-in-difference(DID)identification.We conclude that VAT reform has a positive level effect to urban development with an average increase of 1.46%,and has a negative growth effect to urban development,which implies that VAT reform has a decreasing positive impact to urban development,due to the fiscal transfer payment of "one size fits all" is limited.Meanwhile,the effects appear in the following year of VAT Reform,suggesting the importance of the scope of VAT deduction.We also find that mechanism of the VAT Reform is upgrading of industrial structure,evolution of employment structures,investment optimization and economic growth.Our research has policy implications for the VAT reform,such as setting the tax rates on the basis of sufficient theoretical and divide industry with sub-classification.Then we should adopt the reform of one-stop approach,instead of step by step approach,because the overall effect of VAT reform will be weaken.Furthermore,we should have a definition of policy boundaries and take the modest policy of VAT Reform with Business Tax at specific industries.Last but not least,we should stimulate the local government's initiative to take new-type urbanization when central government optimize the fiscal transfer payment.It is a great significance to push the VAT Reform through legislation.