Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/284174 
Year of Publication: 
2023
Series/Report no.: 
Cardiff Economics Working Papers No. E2023/12
Publisher: 
Cardiff University, Cardiff Business School, Cardiff
Abstract: 
China's fast growth has been accompanied by rising regional inequality, triggering debate over a policy trade-off between aggregate growth and equity. We set out a three-region model of China in which local government behavior affects local TFP dynamics, and regional inequality itself generates more regional productivity divergence. These dynamics can also be affected by central government transfers to regions. Two kinds of fiscal transfers are investigated: equalization transfers and the tax rebate. We estimate and test the model by indirect inference, and explore transfer policy reforms. The results suggest that transfer policies pursued since 1994 have prevented a 15% rise in regional inequality, though at an 8% cost to aggregate GDP.
Subjects: 
Regional inequality
China
Fiscal decentralization
Redistribution
Local Government
Growth
JEL: 
E60
H30
H70
O40
Document Type: 
Working Paper

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