nep-cna New Economics Papers
on China
Issue of 2015‒12‒01
eight papers chosen by
Zheng Fang
Ohio State University

  1. How can a country 'graduate' from procyclical fiscal policy? Evidence from China By Clemens Fuest; Jing Xing
  2. One-Child Policy, Marriage Distortion, and Welfare Loss By Huang, Wei; Zhou, Yi
  3. Status Concern and Relative Deprivation in China: Measures, Empirical Evidence, and Economic and Policy Implications By Chen, Xi
  4. The Role of Individual Social Capital in Wage Determination: Evidence from China By LIU Yang
  5. The great housing boom of China By Chen, Kaiji; Wen, Yi
  6. Seasonal Adjustment of Chinese Economic Statistics By Ivan Roberts; Graham White
  7. Retail Networks and Real Estate: the case of Swiss luxury watches in China and Southeast By Tatsuro Iwaisako; Kazuyoshi Ohki
  8. China’s population expansion and its causes during the Qing period, 1644–1911 By Kent Deng

  1. By: Clemens Fuest (ZEW and University of Mannheim); Jing Xing (Shanghai Jiao Tong University)
    Abstract: In this study, we analyse the cyclicality of fiscal policies in China during the period 1978-2013. We find that the cyclicality of local government spending in China significantly affects the cyclicality of total government spending. By employing both time-series and province-level panel data, we show that local budgetary government spending was strongly procyclical during the 1980s, but it became counter-cyclical with respect to nationwide output fluctuations and acyclical with respect to region-specific output shocks since the mid-1990s. We argue that these are likely to be consequences of the 1994 fiscal reform, which revamped the fiscal relations between the central and local governments, reduced the procyclicality of local government budgetary revenue and brought in counter-cyclical intergovernmental transfers. Findings of this study contribute to the debate on how developing and emerging countries, in particular those with federal fiscal structures, could reduce the procyclicality of their fiscal policies.
    Keywords: Fiscal federalism, tax reform, government spending
    JEL: H71 H72 H77
    Date: 2015
  2. By: Huang, Wei (Harvard University); Zhou, Yi (University of California, Berkeley)
    Abstract: Using plausibly exogenous variations in the ethnicity-specific assigned birth quotas and different fertility penalties across Chinese provinces over time, we provide new evidence for the transferable utility model by showing how China's One-Child Policy induced a significantly higher unmarried rate among the population and more interethnic marriages in China. We further develop the model and find that a policy-induced welfare loss originates from not only restricted fertility but also from marriage distortion, and both depend solely on the corresponding reduced-form elasticities. Our calculations suggest that the total welfare loss is around 4.9 percent of yearly household income, with marriage distortion contributing 17 percent of this welfare loss. These findings highlight the importance of taking into consideration the unintended behavioral responses to public policies and the corresponding social consequences.
    Keywords: One-Child Policy, marriage distortion, welfare loss
    JEL: H20 I31 J12 J13 J18
    Date: 2015–11
  3. By: Chen, Xi (Yale University)
    Abstract: Status concern and the feelings of relative deprivation affect individual behavior and well-being. Traditional norms and the alarming inequality in China have made relative deprivation more and more intense for the Chinese population. This paper reviews empirical literature on China that attempts to test the relative deprivation hypothesis. We review the origins and pathways of relative deprivation, compare its economic measures in the literature, and summarize their applications. Drawing from solid empirical evidence, we discuss important policy implications on redistribution, official regulations and grassroots sanctions, and relative poverty alleviation.
    Keywords: inequality, status concern, relative deprivation, well-being, China
    JEL: I14 I18 I32 B41
    Date: 2015–11
  4. By: LIU Yang
    Abstract: This study examines the role of the individual level of social capital in the process of workers' wage determination in a Nash-bargaining wage model using Chinese micro-level data. We find a significant contribution of individual-specific social capital towards the wage level. In particular, larger individual social networks and workers' positive attitudes towards social capital increase the wage level significantly. Moreover, the effect of social capital on the wage level is much larger for male workers than females. Our results indicate that construction of individual social capital could increase workers' wages, while effort should be made to reduce unequal contributions of social capital between males and females.
    Date: 2015–11
  5. By: Chen, Kaiji (Emory University and Federal Reserve Bank of Atlanta); Wen, Yi (Federal Reserve Bank of St. Louis)
    Abstract: China's housing prices have been growing nearly twice as fast as national income in the past decade despite (1) a phenomenal rate of return to capital and (2) an alarmingly high vacancy rate. This paper interprets such a prolonged paradoxical housing boom as a rational bubble that emerges naturally from China's large-scale economic transition, featuring an exceptionally high rate of return to capital driven by massive resource reallocation. Because such primarily resource-reallocation-driven high capital returns are not sustainable in the long run, expectations of high future demand for alternative stores of value can induce even the currently most productive agents to speculate in the housing market, even if housing provides no rents or utilities. We show that such speculative investment behavior can create a self-fulfilling housing bubble that grows much faster than the national income during an economic transition, thus explaining China's massive "ghost apartment" phenomenon and decade-long faster-than-income growth in housing prices despite high capital returns.
    Keywords: housing bubble; resource misallocation; Chinese economy; development; economic transition
    JEL: E22 E23 O11 O16 P23 P24 R31
    Date: 2015–11–01
  6. By: Ivan Roberts (Reserve Bank of Australia); Graham White (Reserve Bank of Australia)
    Abstract: China's growing importance in the global economy and significance as a source of demand for commodities produced by many countries, including Australia, has focused increasing attention on high-frequency Chinese macroeconomic data. Yet the signal from these data is often distorted by traditional holidays whose timing varies from year to year on the Gregorian calendar. This paper shows that seasonal adjustment procedures (such as the US Census Bureau's X-12-ARIMA and the Bank of Spain's SEATS) can assist in the timely interpretation of a range of commonly used Chinese macroeconomic indicators, including industrial production, trade, credit and inflation. In addition, it suggests a strategy to optimise the selection of moving holiday corrections that account for Chinese New Year, the Dragon Boat festival and the Mid-Autumn festival, prior to seasonal adjustment. It is argued that seasonal adjustment performed with this approach is preferable to simpler techniques.
    Keywords: seasonal adjustment; moving holidays; calendar effects; China; X-12-ARIMA; SEATS
    JEL: E21 R21 R31
    Date: 2015–11
  7. By: Tatsuro Iwaisako (Graduate School of Economics, Osaka University); Kazuyoshi Ohki (Graduate School of Economics, Osaka University)
    Abstract: We develop a Schumpeterian growth model that differs from the quality-ladder model in the following two ways. First, the size of the quality increment is determined by a random draw from a given distribution, and consequently leader firms are different in terms of their quality lead over their followers, and thus have different profit flows. Second, we assume that the R&D technology of leader firms exhibits diminishing returns, and consequently some leader firms engage in R&D activities. The results show that leaders with larger quality leads over their followers make smaller R&D investments and tend to be replaced more rapidly; this result is consistent with the behaviors of some previous leader firms such as Sony and Eastman-Kodak. Moreover, we show that subsidizing followersf R&D can promote leadersf aggregate R&D. Subsidies for followersf R&D promote their R&D and impede individual leader firmsf R&D. However, promotion of followersf R&D decreases the number of leaders with larger quality leads and smaller R&D investments and increases that of leaders with smaller quality leads and larger R&D investments. If this positive effect from a changed distribution outweighs the negative effects on individual firmsf R&D, promotion of followersf R&D increases leadersf aggregate R&D.
    Keywords: Schumpeterian growth; Heterogeneous leaders; R&D subsidies
    JEL: L16 O31 O38
    Date: 2015–11
  8. By: Kent Deng
    Abstract: The Qing Period (1644–1911) has been recognised as one of the most important eras in China’s demographic history. However, factors that determined and contributed to the rise in the Qing population have remained unclear. Most works so far have only speculated at what might have caused the population to increase so significantly during the Qing Period. This study uses substantial amounts of quantitative evidence to investigate the impact of changes in China’s resource base (farmland), farming technology (rice yield level and spread of maize-farming), social welfare (disaster relief), peasant wealth (rice prices), cost of living (silver’s purchasing power), as well as exogenous shocks (wars and natural disasters) on the Qing population.
    Keywords: economic growth; demography; household incomes; market prices; tax burden; proto-welfare; sectoral differences
    JEL: E2 J1 N5
    Date: 2015

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