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Tax Policy and Lumpy Investment Behavior: Evidence from China’s VAT Reform
Zhao Chen, Xian Jiang, Zhikuo Liu, Juan Carlos Suárez Serrato, Daniel Yi Xu, Apr 01, 2020To stimulate investment and promote production efficiency, the Chinese government has undertaken a series of value-added tax (VAT) reforms. One of those reforms, in 2009, reduced not only the purchasing price of equipment, but also investment frictions, i.e., the price gap imposed by the pre-reform VAT system between new and used equipment. We find that this reform increased equipment investment by 36%...
Chinese Infrastructure Projects Help Spread Economic Activity in the Global South
Richard Bluhm, Axel Dreher, Andreas Fuchs, Bradley C. Parks, Austin M. Strange, Michael J. Tierney, Dec 29, 2021Using our recently published geolocated dataset on Chinese government-financed transport infrastructure investments from 2000 to 2014, we show that these investments lead to a decentralization of economic activity within the subnational jurisdictions where they are located. Our analysis documents that this decentralization shifts activity toward suburban and peri-urban areas in low-income countries. We find no evidence suggesting that these projects systematically alter the distribution of activity across subnational jurisdictions.
The Impact of Rapid Aging and Pension Reform on Savings and the Labor Supply: the Case of China
Hui He, Lei Ning, Dongming Zhu, Jun 26, 2019Individuals can use savings and labor supply to self-insure against uncertainties over their life cycle, such as idiosyncratic income shocks and changes in longevity and pension benefits. Using China as a case study, we investigate, both empirically and quantitatively, the impact of rapid aging and pension reform on savings and the labor supply, and the roles...
The Real Effects of the Chinese Stock Market
Itay Goldstein, Bibo Liu, Liyan Yang, Sep 29, 2021In a 2019 survey jointly administered by the China Securities Regulatory Commission (CSRC) and the PBC School of Finance at Tsinghua University (Tsinghua PBCSF), more than 90% of Chinese public firms report that they closely monitor the stock market for the purposes of learning information to guide real investment decisions and of accessing external financing. These findings provide direct evidence for the wide existence of market feedback via a learning channel and a financing channel, suggesting that the Chinese stock market is not just a side show, but instead, affects the real economy.
China Needs Tighter Macro-Prudential Regulations to Loosen Capital Controls
Ambrogio Cesa-Bianchi, Andrea Ferrero, Alessandro Rebucci, Nov 29, 2017China is on a path to capital account liberalization. If the renminbi is to become an international reserve currency (e.g. Prasad, 2016), as it has started to and one day will be, China must have an open capital account. But once the capital account is open, the economy will be exposed to gyrations of the global financial cycle (Rey, 2014). This column argues that international credit supply shocks have powerful effects on real and financial variables of the receiving countries, but not all economies are affected similarly, and those that have lower loan-to-value ratios (LTVs) and limits on foreign currency borrowing (FXLs) are less vulnerable. As China lowers controls on capital flows (e.g., Benigno et al., 2016) it should consider tightening domestic macro-prudential policy regulations (e.g., Cesa-Bianchi and Rebucci (2017) to avoid excessive volatility.
