Export Tax Rebates, Consumer Welfare, and High-Standard Opening Up

Abstract

Against the dual background of the continuing instability of the international trade environment and the urgent need to build a new development pattern in China, the report to the 20th National Congress of the Communist Party of China points out that it is necessary to further smooth the circulation of both supply and demand and continue to promote high-standard opening up guided by expanding domestic demand. Studies on the supply and external demand side of export tax rebates (ETRs) have been widely discussed, but related studies on the domestic demand side are scarce. This paper uses product-level ETRs and regional-level price and wage data in China from 2004 to 2021 to examine the impact of the ETR policy on consumer welfare. This paper finds that the increase in the ETRs improves the level of consumer welfare by lowering the price level, that is, reducing the consumption effect, and raising the wage level to increase the income effect. Further heterogeneity analysis shows that low-income consumers and the eastern region benefit the most from the ETR increase. Therefore, the government should further advance the implementation of ETR policy to fully play its role in promoting foreign trade and expanding domestic demand, thus realizing China’s high-standard opening up.

Keywords

export tax rebate (ETR) / consumer price / resident wage / consumer welfare / high-standard opening up

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