Wang, Jin
(2010)
Essays on incentives and Chinese economic reform.
PhD thesis, London School of Economics and Political Science.
Abstract
This dissertation consists of three essays on incentives and Chinese economic reform. In the first essay, I collect a unique dataset of Chinese municipalities from 1978 to 2007 to evaluate the impact of a Special Economic Zone experiment with incentives including property rights protection, tax breaks and a preferential land policy for foreign investors. Guided by a theoretical model, I find the SEZ policy: 1) increases per capita foreign direct investment by 58%; 2) does not crowd out domestic investment and 3) increases TFP growth rate by 0.6 percentage points. The results suggest that SEZs not only bring capital, but also more advanced technology. In the second essay, I evaluate the fiscal incentive - the marginal sharing rate of fiscal revenue faced by Chinese provincial governments. In 1994, China engaged in a fiscal reform which set marginal sharing rates of budgetary taxes across provinces to a uniform level. Exploiting heterogeneity in the pre-reform budgetary sharing rate, I find that provinces with lower pre-existing rates collect more budgetary taxes; at the same time less extra-budgetary revenue after 1994 relative to those with higher starting level. The results suggest that Chinese provincial governments treat the budgetary tax and extra-budgetary revenue as substitutes. The third essay studies the impact of Chinese municipal governments' fiscal sharing rate on the local economy. The fiscal regime change in 2002 largely reduced the local sharing rate of enterprise income tax. I find that municipal governments respond to this change by allocating more resources including land and capital into the real estate sector, leading to social conflicts between local governments and farmers whose lands were taken with low compensation. The results imply that regional decentralization has to be matched with well-designed incentives to benefit the majority of the population within the jurisdictions.
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