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

Xiaoliang Yang, Lucy Barros, Kent Matthews and David Meenagh

Journal of Policy Modeling, 2024, vol. 46, issue 3, 613-637

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 (search for similar items in EconPapers)
JEL-codes: E60 H30 H70 O40 (search for similar items in EconPapers)
Date: 2024
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Working Paper: The dynamics of redistribution, inequality and growth across China s regions (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:46:y:2024:i:3:p:613-637

DOI: 10.1016/j.jpolmod.2024.01.011

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