Incomplete VAT Rebates, Trade Misreporting, and Export Tax Evasion: Evidence from Resource-Based Products in China

Incomplete VAT Rebates, Trade Misreporting, and Export Tax Evasion: Evidence from Resource-Based Products in China | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Incomplete VAT Rebates, Trade Misreporting, and Export Tax Evasion: Evidence from Resource-Based Products in China Gang Li, Hong Li, Juanjuan Xie This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-7687155/v1 This work is licensed under a CC BY 4.0 License Status: Under Review Version 1 posted 8 You are reading this latest preprint version Abstract Since incomplete VAT rebates act as an export tax, they may incentivize firms to manipulate trade data to evade taxation. This paper, motivated by the widespread bilateral trade discrepancies in China’s resource-based product exports and the 2007 rebate reform, develops a theoretical model to illustrate how changes in the net VAT rate shape firms' cost-benefit structures and affect incentives for evasion. Using bilateral trade data on China’s resource-based exports to 115 countries during 2003–2011 and exploiting the 2007 policy adjustment as an exogenous shock, the study uses a difference-in-differences strategy to identify the causal impact of higher net VAT rates on tax evasion. The results indicate that the policy adjustments significantly increased the level of evasion in the treatment group compared to the control group by 12.7 percentage points. The effect is robust to placebo and sensitivity tests. Mechanism analysis shows that evasion increases along both intensive and extensive margins, primarily through quantity under-reporting and product misclassification. Further heterogeneity tests reveal stronger underreporting in destinations with higher corruption and weaker trade liberalization, and more pronounced evasion in products with higher value-to-weight ratios and larger tax hikes. JEL Classification: F14 , H26 , H32 Incomplete VAT rebate Export tax evasion Trade discrepancies Full Text Additional Declarations No competing interests reported. Cite Share Download PDF Status: Under Review Version 1 posted Editorial decision: Revision requested 21 Feb, 2026 Reviews received at journal 15 Nov, 2025 Reviewers agreed at journal 15 Oct, 2025 Reviewers agreed at journal 12 Oct, 2025 Reviewers invited by journal 10 Oct, 2025 Editor assigned by journal 29 Sep, 2025 Submission checks completed at journal 23 Sep, 2025 First submitted to journal 22 Sep, 2025 You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. We do this by developing innovative software and high quality services for the global research community. Our growing team is made up of researchers and industry professionals working together to solve the most critical problems facing scientific publishing. Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-7687155","acceptedTermsAndConditions":true,"allowDirectSubmit":false,"archivedVersions":[],"articleType":"Research Article","associatedPublications":[],"authors":[{"id":529945041,"identity":"50d0a8f9-24ab-4256-a50e-704cf7ebc9a2","order_by":0,"name":"Gang Li","email":"data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAZAAAAAyAQMAAABI0h/eAAAABlBMVEX///8AAABVwtN+AAAACXBIWXMAAA7EAAAOxAGVKw4bAAAA8ElEQVRIiWNgGAWjYBACPmYwZSPHxszY+OCDgY0cQS1sEC1pxnzszYcNZxSkGRPWAqEOJ8rxHEuT5vlwOJGwFnb2i58Lfh1OYJPIMZO2MWBOYGA/fHQDfofxFEvP7EvPA2oxts4xYMtj4ElLu0FAS4I0b491MVCL4e0cA55iBgkeM0Jakn/z9jAntknkGEhbGEgkNhDWwn5MmueHc2Ibz7EkaQYDA2K08LBZ8zakGbOBArnHIMGYjZBf+PmPP77N88dGTr4ZGJU//vyX42c/fAyvFgYGHgMGxjZke/ErBwH2BwwMfwgrGwWjYBSMghEMAFFNQbVeKn0+AAAAAElFTkSuQmCC","orcid":"","institution":"","correspondingAuthor":true,"prefix":"","firstName":"Gang","middleName":"","lastName":"Li","suffix":""},{"id":529945042,"identity":"768a1ce4-691a-4a8e-9ac6-a052079703c3","order_by":1,"name":"Hong Li","email":"","orcid":"","institution":"","correspondingAuthor":false,"prefix":"","firstName":"Hong","middleName":"","lastName":"Li","suffix":""},{"id":529945043,"identity":"c2f73851-5085-4960-abf6-33e9e5484705","order_by":2,"name":"Juanjuan Xie","email":"","orcid":"","institution":"","correspondingAuthor":false,"prefix":"","firstName":"Juanjuan","middleName":"","lastName":"Xie","suffix":""}],"badges":[],"createdAt":"2025-09-23 01:39:24","currentVersionCode":1,"declarations":"","doi":"10.21203/rs.3.rs-7687155/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-7687155/v1","draftVersion":[],"editorialEvents":[],"editorialNote":"","failedWorkflow":false,"files":[{"id":94189708,"identity":"6084e47e-71f2-4594-8f74-7d80ffc37bd9","added_by":"auto","created_at":"2025-10-23 11:48:04","extension":"json","order_by":0,"title":"","display":"","copyAsset":false,"role":"acdc-reference","size":5995,"visible":true,"origin":"","legend":"","description":"","filename":"57388c7004c14037bf164fb12ebc66e8.json","url":"https://assets-eu.researchsquare.com/files/rs-7687155/v1/d60dcca63bff8821ef59180d.json"},{"id":94190644,"identity":"13cc9125-f1a4-4c15-8fde-beba9f36c4cb","added_by":"auto","created_at":"2025-10-23 11:56:05","extension":"pdf","order_by":1,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":810284,"visible":true,"origin":"","legend":"","description":"","filename":"IncompleteVATRebatesTradeMisreportingandExportTaxEvasionEvidencefromResourceBasedProductsinChina.pdf","url":"https://assets-eu.researchsquare.com/files/rs-7687155/v1_covered_0eaac7d9-162c-4e02-9b5e-392f18b32d49.pdf"}],"financialInterests":"No competing interests reported.","formattedTitle":"Incomplete VAT Rebates, Trade Misreporting, and Export Tax Evasion: Evidence from Resource-Based Products in China","fulltext":[],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":false,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":false,"hideJournal":false,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":true,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":true,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"international-tax-and-public-finance","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":false,"externalIdentity":"itax","sideBox":"Learn more about [International Tax and Public Finance](http://link.springer.com/journal/10797)","snPcode":"10797","submissionUrl":"https://submission.nature.com/new-submission/10797/3","title":"International Tax and Public Finance","twitterHandle":"","acdcEnabled":true,"dfaEnabled":true,"editorialSystem":"em","reportingPortfolio":"Springer Hybrid","inReviewEnabled":true,"inReviewRevisionsEnabled":false},"keywords":"Incomplete VAT rebate, Export tax evasion, Trade discrepancies","lastPublishedDoi":"10.21203/rs.3.rs-7687155/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-7687155/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eSince incomplete VAT rebates act as an export tax, they may incentivize firms to manipulate trade data to evade taxation. 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