Speakers:Yongzheng Liu (Renmin University of China)

Time: June, 08, 2023 (Thursday),13:30-15:30

Venue: Meeting Room 308, College Building 11

Abstract:This study examines how firms respond to export tax increases by adjusting sales across both product and destination markets. We first build a multi-product multi-destination model to show how capacity constrained firms translate negative tax shocks to a specific product-destination market into sale expansions in other product and destination markets. We then find strong evidence on this duel dimensional market interdependence effect of the Chinese exporters by exploiting a quasi-experimental setting of export tax changes and the detailed firm- and product-level trade data. Particularly, the results indicate that the increase in firms’exposure to a negative tax shock for treated products is accompanied with significant increases in both their domestic sales and export sales for non-treated products. Further analysis shows the decline of marginal cost of production for the treated firms in the post-treatment period, which, in turn, supports production capacity constraint as the key mechanism for the detected market interdependence effects.