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The dynamics of redistribution, inequality and growth across China’s regions

Xiaoliang Yang, Lucy Barros Orcid Logo, Kent Matthews, David Meenagh

Journal of Policy Modeling, Volume: 46, Issue: 3, Pages: 613 - 637

Swansea University Author: Lucy Barros Orcid Logo

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DOI (Published version): 10.1016/j.jpolmod.2024.01.011

Abstract

China’s experience has triggered debate over a trade-off between aggregate growth and regional equity. We develop a three-region model of China where local government decisions are driven by central government tax transfer instruments. These affect local TFP dynamics and regional inequality. We find...

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Published in: Journal of Policy Modeling
ISSN: 0161-8938
Published: Elsevier BV 2024
Online Access: Check full text

URI: https://cronfa.swan.ac.uk/Record/cronfa65544
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Abstract: China’s experience has triggered debate over a trade-off between aggregate growth and regional equity. We develop a three-region model of China where local government decisions are driven by central government tax transfer instruments. These affect local TFP dynamics and regional inequality. We find regional asymmetry in how transfers are awarded. Transfer policies pursued since the 1994 tax-sharing reform prevented a 15% rise in regional inequality, at an 8% cost to aggregate GDP. Temporarily reducing local government non-tax fees on private firms in poorer regions lowers regional inequality permanently at no aggregate growth cost, as would imposing uniformity in central transfer rules.
Keywords: Regional inequality; China; Fiscal decentralization; Redistribution; Local Government; Growth
College: Faculty of Humanities and Social Sciences
Funders: This research is supported by the ESRC-Newton Grant ES/P004199/1, NSFC #71661137005 and the Fundamental Research Funds for the Central Universities, ZUEL#2722022BQ017.
Issue: 3
Start Page: 613
End Page: 637

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