NADS Professor Yin Heng Won Outstanding Paper Award at the 4th China Public Finance Forum

Yin Heng, Professor of National Academy of Development and Strategy, RUC won the Outstanding Paper Award at the fourth China Public Finance Forum with paper titled “Excess Burden of VAT in Chinese Manufacturing Industry: from the perspective of firm heterogeneity”.

The paper introduced firm heterogeneity into the efficiency analysis of VAT, developing a structural model to estimate the VAT efficiency in the context of firm heterogeneity. The paper found that despite multi-level VAT tax rates and preferential policy caused great inter-firm differences in terms of tax rate, its actual efficiency loss was not much. On average, the VAT efficiency loss was only about 2.47% of the actual output over the same period, accounting for just 3.34% of the overall economic efficiency loss. In the analysis of most industries, the VAT efficiency loss basically can be neglected.

Through policy simulation, the paper showed that the benefits of canceling all VAT preferential policies and putting into force universal tax rate in the short run are not so obvious, instead by doing so it might increase the risk of bringing more efficiency loss, therefore, it’s better to gradually improve China’s VAT system.