Optimal Export Taxes in Global Value Chain

ABSTRACT The determinants and optimality of implemented export taxes have long been understudied. In this work, I analyze how a country's optimal export taxes on products are influenced by their usage as inputs in traded final products. I decompose the influence of input–output linkages in the Global Value Chain (GVC) on optimal export policy into three channels in a two‐country trade model with multiple industries and roundabout production. Using China's applied export taxes from 2003 to 2012, I empirically demonstrate that the terms‐of‐trade effect and the three GVC effects are partially accounted for in China's export tax rates. The GVC effects underwent changes following the Global Financial Crisis in 2008. The comparison between calibrated optimal export tax rates and applied export tax rates reveals political bias in China's export tax on differentiated products, particularly in incorporating GVC effects.