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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%...
Can a Housing Boom Lead to Rent Inflation?
Honglin Wang, Fan Yu, Yinggang Zhou, Aug 24, 2018The housing boom and bust cycle has called attention to the volatility of housing prices and its impact on other markets. We challenge the conventional wisdom that housing prices are the present value of future rents and show that housing price uncertainty can affect household property investments, which in turn affect rent. Using data from Hong Kong and mainland China, we find a significant effect of housing price on rent and draw important implications for monetary and macro-prudential policies.
Overpricing in China’s Corporate Bond Market
Yi Ding, Wei Xiong, Jeffrey (Jinfan) Chang, Nov 27, 2019In China’s corporate bond market, the yield spread of newly issued bonds at their first secondary-market trade is on average 5.35 bps higher than the issuance spread. This overpricing is robust across bond issuances with different credit ratings, maturities, issuance types, and issuer status. Evidence suggests that competition among underwriters drives this overpricing through two specific channels—either through rebates to participants in issuance auctions or through direct auction bidding by the underwriters for themselves or their clients.
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 Mandarin Model of Growth
Wei Xiong, Feb 13, 2019The Mandarin model is defined by two key features of the Chinese economy. First, the government takes a central role in driving the economy through its active investment in infrastructure. Second, the agency problems between the central and local governments can lead to a rich set of phenomena in the Chinese economy--not only rapid economic growth propelled by the tournament among local governors, but also short-termist behaviors of local governors that directly affect China’s economic and financial stability.
