The Impact of Intranational Trade Barriers on Exports: Evidence from a Nationwide Vat Rebate Reform in China

It is well known that various forms of non-tariff trade barriers exist within a country. Empirically, it difficult to measure these as they can take many forms. We advantage nationwide VAT rebate policy reform in China natural experiment identify the existence intranational due local protectionism and study impact on exports exporting firms. As result shifting tax burden, leads greater incentive provincial governments block domestic flow non-local goods export intermediaries. develop an open-economy heterogenous firm model incorporates multiple regions technologies, including intermediary sector. Consistent with model's predictions, we find rising reduction interprovincial trade, more inward-looking sourcing behavior intermediaries, manufacturing exports. Analysis using micro firm-level data further shows private companies baseline reliance intermediaries are adversely affected.