An analysis of the Effects of Value-added Tax Reform with Using the DID Method

This paper employs survey data from China National Taxation Bureau for 2006-2012 and applies the method ofDifference-in-Difference to study the effects of value-added tax reform, which was put into effect nationwide in 2009. The empirical findings show that when the VAT system changed from production-based to consumption-based, a typical firm's VAT burden has fallen significantly during the three year period after the nationwide reform. In addition, we have obtained supporting evidence that the VAT reform encourages firm investment and improves firm performance. These results suggest that the value added tax reform in 2009 has obtained the good policy effects, which are in line with the original intentions of the reform.