How Does the VAT Retention and Refund Reform Affect Supply Chain Resilience? Evidence From China

ABSTRACT As global supply chains face mounting instability, building resilience becomes increasingly valuable for firms. Drawing on data from Chinese firms (2012–2022) and leveraging the 2018 VAT retention and refund reform (VATRR) as a natural experiment, we analyse how VATRR affects supply chain resilience (SCR). The results indicate that the VATRR has a significant positive effect on firms' SCR. The analysis of underlying mechanisms shows this effect operates through three pathways: reduced financial constraints, higher innovation, and increased specialisation. Moreover, the evidence suggests the effect is more salient among small, young, non‐state‐owned firms, those in the eastern region, and capital‐technology‐intensive firms. Our research has important policy implications for developing countries to guide them in strengthening their SCR through tax policy.