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Comparison Between Uniform Tariff and Progressive Consumption Tax in the Chinese Automobile Industry *
Author(s) -
Shen Caixia,
Wang Yanfei,
Xiao Junji,
Zhou Xiaolan
Publication year - 2021
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/joie.12255
Subject(s) - tariff , protectionism , consumption (sociology) , consumption tax , international economics , economics , domestic market , ad valorem tax , welfare , tax reform , business , international trade , market economy , social science , sociology
This paper studies the protectionist effect of a non‐trade policy — a consumption tax — compared to that of a tariff on the Chinese automobile market. Our empirical findings suggest that both the consumption tax and the tariff can protect domestic automakers’ market shares, but they can only shift a small portion of demand from imported cars to domestic cars. This demand exclusion is caused by the weak substitution between imported cars and domestic cars, and it is the underlying reason for the welfare loss caused by both the tariff and the consumption tax. A change in the consumption tax favorable to domestic manufacturers is equivalent to an additional 28% tariff, beyond the explicit 25% tariff, in terms of its protective effect on domestic manufacturers’ market shares.