The effect of the export tax rebate on China's green tea market

Abstract

The demand for tea internationally, especially green tea has increased dramatically in recent years. China is a major producer and exporter of green tea. To compete effectively in the world tea market, the Chinese government promulgated the Export Tax Rebate Policy in 1985 into practice. By fully refunding the tariff in the domestic production and distribution process, export retailers can export green tea at a no-tax price. This policy not only encourages green tea exports, but also protects the retailers’ benefits and rewards their initiative. In this paper, I use an Equilibrium Displacement Model with a series of elasticities to detect the effect of the export tax rebate on the China’s green tea market. In order to analyze the impacts on the whole of China’s green tea market, I set up a system of equations to combine the farm-level market and the retail-level market. I use three key exogenous variables, the input tax, the value added tax and the export tax rebate rate, to uncover the effects of the tax and rebate policies in the domestic and export markets.