Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/252028 
Year of Publication: 
2022
Series/Report no.: 
CESifo Working Paper No. 9511
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
In this paper, we investigate distortions created by turnover taxes. As a natural experiment, we explore a reform that replaced turnover taxes with value-added taxes for some service industries in China, while the taxation of manufacturing industries remained unchanged. The reform increased sales, R&D investment, and employment for affected service firms, which is primarily driven by outsourcing from downstream manufacturing _rms. We document that smaller and less innovative manufacturing firms outsource more, and reallocation increases the quality of innovation for affected service firms. Our study provides new evidence on the negative impact of turnover taxes imposed on business inputs.
Subjects: 
turnover tax
value-added tax
outsourcing
R&D investment
JEL: 
H25
H26
O32
D25
Document Type: 
Working Paper
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