Lecture Title: Market Interdependence: Evidence from Firms' Responses to Tax Increases

Speaker: Professor Liu Yongzheng, Wu Yuzhang Distinguished Chair Professor, Renmin University of China

Time: 09:00 AM, May 16, 2025
Venue: Room 210, Economics and Management School

Abstract:
This study examines how firms respond to export tax increases by adjusting sales across product and destination markets. We first built a multi-product multi-destination model to demonstrate how capacity-constrained firms translate negative tax shocks to specific product-destination markets into sales expansion to other product and destination markets. By exploiting a quasi-experimental export tax change setting and applying detailed firm and product-level trade data, we find strong evidence of this dual-dimensional market interdependence effect on Chinese exporters. Specifically, the results indicate that an increase in export tax for treated products of the firms is accompanied by significant increases in the firm’s export sales for the untreated products and total domestic sales. Further analysis demonstrates a decline in the marginal cost of production for treated firms in the post-treatment period, which affirms that production capacity constraints comprise the key mechanism for detecting market interdependence effects.

Speaker Profile:

Professor Liu Yongzheng, a leading authority on fiscal federalism and tax policy, holds the prestigious Wu Yuzhang Chair Professorship at Renmin University. His work appears in top journals including:

• American Economic Journal: Economic Policy

• Review of Economics and Statistics

• China Social Science

• Economic Research

Honored with the CES Best Young Economist Award and Gregory Chow Best Paper Award, Professor Liu has led multiple National Social Science Foundation key projects. His research consistently informs China's fiscal policy reforms.

This lecture will be conducted in Chinese