Sponsor(s):Institute of Economics, Chinese Academy of Social Sciences
ISSN:0577-9154
CN:11-1081/F
12 issues per year
Current Issue: Issue 03, 2020
Total Downloads:1811
Journal official website:http://www.erj.cn/en/default.aspx
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Economic Research Journal is supervised by Chinese Academy of Social Sciences, and sponsored by Institute of Economics, Chinese Academy of Social Sciences. It aims to conduct researches on the new situation and new problems in China’s reform and opening up, economic development and transformation. Its scope covers all fields of China economics, including economic theory, finance, taxation, enterprise, new rural construction, marketing and accounting, etc. The journal, included in CSSCI, possesses a very high academic position in both domestic and oversea economic and management domain with which you can have a overall understanding about China’s comprehensive economics.
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Editor-in-Chief
Pei Changhong
Deputy Editor-in-Chief
Zhang Ping, Zheng Hongliang, Wang Cheng
Does the local government financing platform crowd out small and medium-sized enterprise loans?
LIU Chang;CAO Guangyu;MA Guangrong
Economic Research Journal,2020,Vol 55,No. 03
The dilemma of financing China’s small and medium-sized enterprises (SMEs) has been hotly debated in academic and policy circles. Existing literature has mainly focused on the supply-side characteristics of China’s lending market to explain the predicament of SME financing. As China’s financial system is still relatively underdeveloped, firms, especially SMEs, are heavily reliant on the indirect financing channel, such as banking loans. However, China’s banking system is dominated by state-owned large commercial banks. A substantial body of literature has demonstrated that large banks have disadvantages in financing SMEs. Despite the importance of this subject, few empirical studies have used disaggregated county-level data to derive credible inferences on the demand-side causes of the stagnant growth of SME loans in China. Furthermore, China’s local governments are closely connected to the financial system, and local governments face strong incentives to invest in infrastructure construction programs. However, China’s Budget Law, enacted in 1994, strictly prohibited local governments from raising debt until 2015. In response, local governments established local government financing platforms (LGFPs) to circumvent this legal restriction. Specifically, a local government injects land reserves or future land sale revenues into an LGFP as collateral to raise debt financing through banks. In a typical arrangement, an LGFP also carries either explicit or implicit guarantees from its affiliated local government. Even more importantly, the loan decisions of China’s large state-owned banks are, to varying degrees, subject to intervention from local governments. Therefore, the LGFPs have absolute advantages over SMEs in the lending market. Based on the longstanding observations documented above, we propose the following research hypothesis: the establishment of China’s LGFPs may have had crowding-out effects on regional SME loans, especially SME loans from state-owned large banks. Our sample combines the LGFP name list and detailed county-level bank loan data from 2006 to 2011 obtained from the China Banking and Regulatory Commission. We use a standard difference-in-differences strategy to identify the effects of county-level LGFP establishment on the growth of SME loans. In practice, we define a county’s treatment status according to whether it established an LGFP for the first time. We control for a flexible time trend varying by a full set of pre-determined county attributes, including the level of development, market size, degrees of financial deepening, and natural conditions, and several crucial time-varying prefectural-level and county-level covariates. Our main results suggest that the establishment of the LGFPs significantly reduced the SME loans of China’s state-owned large commercial banks. The results of the event study reveal that the SME loans of the treatment and control group counties generally evolve in a parallel before the establishment of the LGFPs. This finding is highly robust to alternative specifications and a placebo test using a randomly assigned false treatment time. In contrast, we do not observe a significant crowding-out effect on the SME loans of China’s small banks. We also find that the establishment of an LGFP is associated with a decrease in the non-performing loans of state-owned large commercial banks. Given China’s strict financial regulation of banks’ non-performing loan ratio, this finding helps to rationalize why LGFP loans are sought after in China’s lending market. In sum, our findings indicate that the allocation of financial resources from SMEs to LGFPs fails to promote regional economic performance in the short run. This paper reveals the crowding-out effects of China’s local governmental debt boom on SME loans in the lending market. Our paper provides important policy implications. Notably, although the Chinese central government has prohibited local governments from directly borrowing from the banking system through LGFPs in recent years, local governments still manage to use debt to finance their infrastructure projects, albeit through the shadow banking channel and thus with higher borrowing costs and less transparency. Our paper highlights the potential side effects of China’s local governmental debt boom on the real economy.
Further discussion on China’s financial asset structure and policy implications
YI Gang
Economic Research Journal,2020,Vol 55,No. 03
Financial asset structure provides an important vantage point to look into the financial development. While being a reflection of the economic structure, financial asset structure also shapes it. Following Yi (1996) and Yi et al. (2008), this paper studies the change of financial asset structure in China in the past decade and its implications on resource allocation and risk sharing, which may shed light on the inherent logic of China’s macroeconomic operation and provide implications for appropriate policies. According to the estimation in this paper, China’s total financial assets at least quadrupled in absolute size and grew by nearly 200 percentage points in its proportion in GDP from 2007 to 2018, reflecting continuous progress in financial deepening and the support provided to the real economy by the financial sector. Meanwhile, the structure of financial assets changed significantly. In particular, the share of direct financing (mainly through capital markets) declined, the proportion of bank loans grew, off-balance sheet and wealth management assets expanded rapidly and the overall macro leverage ratio (debt to GDP ratio) nearly doubled in the past decade. This paper argues that the changes in financial asset structure are reflections of structural changes in the real economy. After the global financial crisis in 2008, as domestic demand played a more important role in driving economic growth, China’s economy became increasingly reliant on credit-driven growth. While the rise of debt leverage was to some extent inevitable during this process, the rapid expansion of credit related to the government and the real estate sector, mostly financed by banks, was also evident, creating a self-reinforcing mechanism that could result in excess capacity, real estate bubble and growing debt leverage. The above changes imply growing risks that concentrate on banks, most of which may ultimately be borne by the government. Such a shift of financing instruments towards bank loans and increased concentration of risks to the banking sector are hardly desirable. In fact, decentralized decision-making and broad risk-sharing across economic entities are essential characteristics of a market-oriented economy, and can promote a more efficient economic system and a more robust financial system. We have already recognized that it is no longer sustainable to boost economic growth through excessive debt expansion. Instead, while refraining from strong stimulus policies, policy makers need to put emphasis on the supply-side structural reform to promote adjustments of the economic structure, and to achieve high-quality development. As a result, important progress has been made in enhancing the stability of financial system and the increase of overall leverage ratio has moderated significantly during 2017 to 2019. Going forward, policies should aim to allow the financial sector to provide sufficient support to the real economy while avoiding continuous rapid rise in the macro leverage and systemic risks that may follow. This paper provides three policy implications. First, leverage ratio at the macro level should be stabilized, which requires macroeconomic policies to strike a right balance between supporting growth and preventing risks. To this end, it is necessary to stay within the domain of conventional monetary policy for a period as long as possible. Second, direct financing needs further development through reform and opening up. Direct financing, especially equity financing, can lessen the reliance on bank loans, support the real economy, and improve risk sharing while helping stabilize the leverage ratio. It is necessary to accelerate the reform of registration-based initial public offerings, and improve the transparency of capital markets, so that investors can determine how much risk to take and enjoy the corresponding returns. Third, potential risks, including those associated with the sequence of reform and opening up, individual financial institutions and the real estate sector, must be well managed.
Relative performance evaluation and mergers and acquisitions: theory and empirical evidence
LI Guangzhong;ZHU Jiaqing;LI Jie;LI Xinchun
Economic Research Journal,2020,Vol 55,No. 03
Relative performance evaluation (RPE) is an evaluation design in which the principal rewards or punishes an agent based on his or her performance relative to the performance of his or her peers. RPE is widely used in practice. In China, the State-owned Assets Supervision and Administration Commission (SASAC) of the State Council issued compendiums in 2006 and 2008, mandating the use of RPEs in evaluating the executives of state-owned enterprises (SOEs), with the aim of promoting manager-shareholder incentive alignment. Although some researchers have posited that RPEs can enhance managers’ incentives to increase shareholder wealth by promoting risk sharing and incentive alignment, the real economic consequences of RPEs warrant further research. Studies have examined the effects of RPEs on various corporate decisions, including CEO compensation, CEO turnover, industry competition, and firms’ strategic accounting disclosure. This study extended the seminal work of Salent et al. (1983) in this area and examined the impact of RPEs on corporate merger and acquisition (M&A) decisions, a particular form of corporate investment. Specifically, we examined the impact of RPEs on corporate M&As in an oligopolistic model setting. In the model, an agent’s utility is assumed to be a function of the firm’s profit and that of its rivals. Thus, managers’ merger decisions are linked to the firm’s relative performance. We documented that RPEs can result in an agent’s utility being affected by M&A decisions in four ways. First, the synergy effect improves the merged entity’s performance and increases the agent’s utility. Second, the internalized competition between the merging firms benefits the merged firm and increases the agent’s utility. Third, the positive externality effect on the non-merged firms from reduced competition may damage the merged firms’ performance and decrease the agent’s utility. Finally, the positive externality to the non-merged firms decreases the agent’s utility because of the RPE. As a result, we found that ceteris paribus, implementing and strengthening RPE lower the probability of M&As with synergy effects, and that increased market competition attenuates this effect. In the empirical part, we examined the two executive evaluation reforms of Chinese SOEs issued by SASAC in 2006 and 2008, which emphasize the importance of RPEs. We treated the reforms as two quasi-natural experiments and used a difference-in-differences approach to examine the impact of RPEs on corporate M&A decisions. We used listed A-share firms in China from 2000 to 2013 as our sample. Data on M&As and the firms’ financial statements are obtained from the China Stock Market & Accounting Research database. Consistent with our theoretical predictions, our estimation results showed that the executive compensation reforms of Chinese SOEs in 2006 and 2008 reduce the probability of M&As for SOEs and that this negative effect is mitigated by increased market competition. For SOEs, the positive effect of corporate M&As on firm value is reduced with the implementation and strengthening of RPEs. We also found that the introduction of stock-option-based executive compensation mitigates the negative effect of RPEs on corporate M&As. Our study has made two contributions to the literature. First, we demonstrated a potential channel through which RPEs can have a negative impact on corporate M&As with possible synergy effects. Second, we explored the economic consequences of the implementation of RPEs and provided useful insights and policy implications for the executive compensation reform of Chinese SOEs. Our results suggested that RPEs should not be implemented in industries with a low degree of market competition, as they may have adverse effects on M&As with synergy effects. Therefore, removing the barriers to entry for industries with a low degree of market competition would help alleviate the problem of RPEs leading to insufficient effective M&As. Our findings thus provided valuable and constructive insights for regulators seeking to reform the executive compensation system by aligning manager-shareholder incentives in SOEs in China.
On patenting behavior of Chinese firms: stylized facts and effects of innovation policy
KOU Zonglai;LIU Xueyue
Economic Research Journal,2020,Vol 55,No. 03
Since implementing its reform and opening up in 1978, China has experienced more than four decades of remarkable economic growth, mainly driven by large-scale factor motivation. However, in light of the rapidly rising labor costs and increasingly severe environmental pressure in recent years, this extensive economic growth appears to be unsustained. Accordingly, at the 18th National Congress, the Communist Party of China launched its “Innovation Driven Development Strategy,” which aims to harness technological progress as a new engine of growth and realize the transformation from “made in China” to “innovated in China.” Given the crucial roles that firms play in the national innovation system, whether China can realize this strategic transformation mainly depends on the innovation performance of the country’s firms. To facilitate studying firm innovation in China from a patent perspective, we used a scientific procedure to match two important databases, i.e., the patent database released by the China National Intellectual Property Administration (CNIPA) and China’s Annual Survey of Industrial Firms (ASIF) released by the National Bureau of Statistics of China (NBSC). To minimize the potential problems of overmatching and under matching arising mainly from the Chinese language, we used a combination of precise matching and fussy matching methods after conducting careful data cleaning. Using the NBSC-released macro data as a calibrating benchmark, we showed that our matching results are quite reliable, and that the necessity of fussy matching is decreasing over time. According to the matching results, only a tiny proportion of Chinese firms have patenting experience, although this proportion is increasing very rapidly. Furthermore, using patenting behavior to measure innovation, we observed several salient stylized facts about Chinese firms. First, in terms of both patenting quantity and quality, big firms are more innovative than small ones, which strongly supports the Schumpeterian hypothesis. Second, in terms of the patent rate (patent applications/total assets), private firms, especially big ones, are more innovative than SOEs. Third, also in terms of the patent rate, exporting firms are more innovative than non-exporting ones. Fourth, at the regional level, firm innovations show strong agglomeration effects, but as innovation poles, Beijing, Shanghai, and Shenzhen show quite different core-periphery patterns. Finally, firm innovations are highly unbalanced across industries, and labor intensive industries are more innovative than capital intensive ones. Even more interestingly, we found that 2006 appears to constitute a watershed in the transformation of the patterns of innovation among Chinese firms. Specifically, around that year, the patenting behavior of Chinese firms shows a significant inverted U-shaped feature in the dimensions of scale, agglomeration at the regional and industrial levels, and comparative advantage of exporting firms to non-exporting ones. Inspired by the above findings and considering that the Outline of the National Program for Medium-and Long-term Science and Technology Development (2006–2020) (hereafter the Outline) promulgated and implemented in 2006 is one of the most important innovation policies to be introduced in China in the past decade, we used a quasi-difference in differences method to study the impact of the Outline on the innovation of Chinese firms. Our analysis showed that the Outline not only significantly improves the patent quantity, patent quality, and total factor productivity of firms, it also promoted the innovation output of labor-intensive industries. However, in relation to firm size and region, the Outline does not have a heterogeneous impact on firm innovation. As the ASIF data comprise unbalanced panel data with a large number of firms entering and exiting intertemporally, and the quasi-difference in differences method only captures the effect of the Outline on firms that are included in the sample before and after 2006, we recalculated the innovation Gini coefficients at the levels of firm size, region, and industry, and the patent rates of exporting to non-exporting firms for the firms that entered the sample after 2006. Compared with the whole sample, the results of each index in the sub-sample were significantly smaller, implying that the above inverted U-shaped relationships were mainly driven by the heterogeneity of new entrants after 2006.
Pregame resource exchange as a mechanism in overcoming the coordination dilemma: an experimental study
YAO Lan;ZHU Xun
Economic Research Journal,2020,Vol 55,No. 03
Organizational contexts often require the efficient coordination of independent agents with strategic complementarities. However, given that hard work benefits all, team members tend to exert minimal effort. Thus, an important organizational question is how to improve the coordination within a team when it is not possible to directly incentivize employee effort. We observe a phenomenon that has not been noted in the literature. Specifically, when team members are stuck in a state of inefficient coordination, the available and remaining efforts that are not devoted to coordination can be considered a waste of resources. Although in reality, team members tend to allocate these efforts to other work, we believe that the remaining efforts could be an important tool for improving coordination. We use a novel design, by adding a pre-stage before the coordination game, to examine whether publicly revealing one’s efforts in other work has a positive effect in improving coordination. We study the experimental frameworks of Van Huyck et al. (1990), which comprise seven symmetric, Pareto-ranked, pure strategy equilibria on the main diagonal with four players. We replicate the design in Van Huyck et al. (1990) as the control treatment. In the main treatment, we add a pre-stage before the coordination game. In the pre-stage, the players are allowed to directly exchange some of their six units of effort for payment, with an exchange rate of 1:1. The units exchanged can be observed by the group members. The members then play the coordination game, in which they are allowed to use any of the remaining units. We use two additional treatments to separately test the effects of the two key features in the main treatment, making resource exchange observable and an endogenously generated strategy space. In the silent treatment, we implement the mechanism but hide the information on the subjects’ exchange choices. In the artificial treatment, we remove the exchange stage in the main treatment and exogenously give the subjects the same strategy spaces used in the main treatment. We find that extra pregame resource exchanges effectively improve the coordination, with 91.7% of the groups in the main treatment reaching coordination success, which is 50% higher than the control treatment. The performance in the silent treatment and artificial treatment is not significantly different from that in the control treatment. This implies that the better performance in the main treatment is attributable to the endogeneity of the strategy spaces formed by exchanging resources, and that sharing information on resource exchange makes forward induction feasible. Our paper makes three contributions to the literature. First, we use the available but remaining resources that are not used in the coordination task as a tool to improve coordination. Here, the efforts allocated to the pregame and coordination game are complementary. Hence, the resource exchange in the pregame can serve as an effective communication tool and truthfully signal an individual’s intention in the coordination task. Second, we propose a novel way of signaling, in which the cost of communication dynamically changes over the periods, which serves as the signal of the strategy in the coordination task. The cost of communication converges to zero when the team members achieve efficient coordination. Numerous studies have found that costless communication can be effective in improving coordination but with demanding requirements, such as in large groups when all of the members send signals. Different from the costless and costly communication discussed above, our results show that with the dynamic costs used in our mechanism, the team members are willing to signal their intentions for coordination. Third, although forward induction has been found to be an important tool, it introduces sample selection problems. In our study, all of the players participate in both the pregame and the coordination game. As a result, forward induction functions in all of the samples, which thus resolves the selection problem, and can explain 82.2% of the improved coordination. In summary, we propose a novel design to ensure the pregame communication confirms both the goal and the strategy. Our mechanism allows all players to conduct forward induction, and makes the players’ commitments reliable and enforceable.
Indirect tax incidence in China: evidence from a quasi-natural experiment in the vehicle market
ZHOU Bo;ZHAO Guochang
Economic Research Journal,2020,Vol 55,No. 03
Tax incidence is one of the most important themes in public economics. When governments consider implementing a tax increase or a tax cut, they need to consider who will bear the increased tax burden or who will benefit from the tax cut. The numerous empirical studies that have examined these issues over the last two decades have enhanced our understanding of tax incidence, tax policies, and the economic effects of tax. Since the 1990s, indirect taxes have accounted for more than half of the total tax revenue in China. However, because few empirical studies have examined the incidence of indirect tax in China, our understanding of indirect tax incidence is mainly confined to theoretical analyses. In addition, China’s Gini coefficient has remained above 0.46 for the last two decades, and income inequality has long been a focal topic of discussion. Moreover, environmental pollution, especially air pollution, is a serious problem in China. Thus, we also need to deepen our understanding of how tax affects both income distribution and environmental pollution. Although a large body of research has examined the impact of tax on income distribution, carbon emissions, and economic growth, due to the lack of empirical research, these studies impose some assumptions regarding tax incidence; for example, they usually assume that buyers bear all of the tax. Consistent estimation of the division of the tax incidence between buyers and sellers requires some form of exogenous shock. In 2015, China’s central government suddenly cut vehicle purchase tax by half, providing a quasi-natural experiment to estimate tax incidence and analyze the impact of indirect tax in the vehicle market on China’s income distribution. Specifically, on September 29, 2015, the Ministry of Finance and the State Taxation Administration unexpectedly jointly announced a tax cut policy that reduced the tax rate from 10% to 5% on vehicles with an engine displacement smaller than 1.6 liters from October 1, 2015 to December 31, 2016. In this paper, we use data from the largest automobile website in China (www.autohome.com), which provides an active forum for vehicle buyers. Numerous buyers search for vehicle information on the website before making purchases and post transaction information, including the purchase time, location, and price, and their opinions after the purchase. We collected all of the transaction data from 2014 to 2016 on the website, and restricted the main sample to the transactions that occurred between September 2015 and December 2015 according to our research question. In one of our robustness checks, we also use a wider window of transactions between September 2015 and March 2016. Based on the unexpected change in the tax rate and the online micro transaction data, we use a DID approach to estimate the tax incidence. We find that overall buyers obtain 85% of tax cuts; the vehicle prices respond to the tax cuts within one month, which is very quick; and the buyers of turbocharged vehicles and foreign-brand vehicles obtain 71% and 88% of the tax cuts, respectively. These results suggest that changes in the tax rate are effectively transmitted to the price, which implies that the tax cuts can be expected to affect consumption and environmental pollution. Combining the sample data with data from the 2015 China Household Finance Survey, we find that the tax reduction had no substantial effect on income distribution. This paper contributes to the literature in the following ways. First, the literature on tax incidence in China is mainly either qualitative or assumes that the buyers bear all tax burdens, whereas we estimate the tax incidence based on micro data. We also investigate whether the vehicle purchase tax cut affects the income distribution, which should shed light on how indirect tax influences the income distribution in China. Second, the research on tax incidence, especially on indirect vehicle taxes, has mainly focused on developed countries. This paper provides evidence from a developing country, which is also the largest vehicle market in the world. Third, although few studies have investigated the dynamics of tax incidence, we make some headway in dynamically analyzing the tax incidence.
Public regulation, private regulation and coordinated regulation in platform markets: a comparative study
WANG Yong;LIU Hang;FENG Hua
Economic Research Journal,2020,Vol 55,No. 03
In this paper, we built a simple dynamic game model to study the strategic interactions among government regulatory agency, platform enterprise, and online sellers, and investigated different regulatory mechanisms in online platform market. We focused on the impact of different regulatory mechanisms on sellers’ choices of goods quality and on regulators’ incentive. The regulation implemented by the government is viewed as public regulation, whereas the regulation implemented by the platform is considered as private regulation. We explored three regulatory mechanisms: (1) direct regulation by the government, where only the government supervises the sellers; (2) self-regulation by the platform, where only the platform supervises the sellers; and (3) coordinated regulation by both the government and the platform, where two regulators supervise online sellers together, and the government also monitors the platform’s regulation outcomes. In case (1) and case (2), we assume that a regulator (the government or the platform) at first chooses the sampling force for goods quality inspection, which determines the probability of discovering unqualified goods sold on the platform market, and then the sellers choose product quality after observing the sampling force. If the actual quality is lower than the quality standard that is exogenously given, the regulator will fine the seller a certain amount of money, which is determined by the penalty level and the difference between the actual quality and the quality standard. In case (3), the government and the platform choose the sampling forces respectively, and then sellers choose product quality after observing the two sampling forces. The platform and the government will fine a seller if the quality of his goods is found lower than the standard exogenously given. Moreover, the platform would also be fined by the government due to sellers’ unqualified goods because the platform takes joint liability. We compared the equilibrium status and comparative static analyses of the three regulatory mechanisms, and found that when the size of a platform is sufficiently large, the goods quality in case (2 would be higher than that in case (1), and when the joint liability of the platform is sufficiently large, the product quality in case (3) would be the highest among the three regulatory mechanisms structures. We have also found that the relationship between the government and the platform is not solely complementary or substitutive, but depends on the penalty level, platform size, and degree of joint liability. Finally, we have jumped to the conclusion that the penalty imposed on sellers should not be too harsh, and that there exists a moderate level of penalty level that maximizes and coordinates the regulatory incentives. This paper contributes to existing literature in three aspects. First, by introducing penalty level, platform size, and joint liability, we examined the strategic interactions among the government, the platform, and sellers in a unified dynamic game model, while most studies only considered moral hazard from sellers’ side, or the strategic interaction between two parties, platform and sellers or regulation agencies and sellers. Few studies have explored three-party interaction. Second, we have investigated whether the relation between platform and government is substitutive or/and complementary, by comparing the effects of their penalty levels which are often ignored in existing literature. Third, we found that the penalty could not be too harsh and best performance occurred at a moderate level, which is similar to the “regulation boundary” hypothesis proposed by Xie et al. (2016). However, different from Xie et al. (2016), we focused on the effect of penalty level on regulation incentives of the government and the platform, rather than the effects on sellers’ opportunistic behaviors.
The effect of unemployment insurance on job search efforts: evidence from the Chinese time use survey
LIANG Bin;JI Hui
Economic Research Journal,2020,Vol 55,No. 03
Mortensen’s (1970, 1977) job search theory, which proposes that unemployment insurance (UI) reduces the job search efforts of the unemployed, is supported by the theoretical and empirical literature. Therefore, economists are generally skeptical about the effect of UI in improving job search efforts (such as Barron & Mellow, 1979; Krueger & Mueller, 2010). However, in addition to providing a basic living for the unemployed, UI has been found to promote reemployment in many countries. Hence, there is a significant divergence between policies and academic views regarding the effect of UI on job search efforts. Using data from the China Household Finance Survey (CHFS) and the Chinese Time Use Survey (CTUS) in 2017, we empirically identify the effect of UI on the job search efforts of the unemployed. We use the level of UI at the county level as the instrumental variable to deal with possible endogeneity problems. The instrumental variable regression results are consistent with those of our baseline regression, indicating that UI may increase the job search efforts of the unemployed. The placebo test and propensity score matching test results also confirm the robustness of our baseline results. We further identify the channels through which UI has a positive effect on job search efforts. Our results show that UI significantly increases the job search efforts of the unemployed and lowers their search costs, suggesting that UI may help the unemployed to increase their job search efforts by covering their search costs. We also examine the liquidity effect of UI. In contrast with Krueger & Mueller (2010), we find that the liquidity effect of UI on job search efforts is positive, which means that UI in China promotes search efforts by alleviating the liquidity constraints of the unemployed. This supports the theoretical findings of Ben-Horim and Zuckerman (1987). Finally, we test and exclude the alternative explanation of the influence of vocational training and learning. Why does UI in China have a significant positive effect on search efforts? China’s UI policy has only been formally established for the last 20 years. The levels of UI benefits in China are far behind those of developed countries such as the United States, France, Germany, and Sweden. China’s overall level of social security is also insufficient, which significantly amplifies the effect of UI on job search efforts. Our analysis also shows that there is a crucial inflection point in the effect of China’s UI policy on search efforts. With an increase in the level of UI, the positive effect of UI on search efforts gradually decreases. When the UI benefits exceed the inflection point, UI may inhibit job search efforts. Our findings have strong policy implications for the development of China’s UI system. The results show that China’s UI policy fosters reemployment in China. By covering the search costs, UI effectively improves the job search efforts of the unemployed and thus promotes their reemployment. The following suggestions for China’s UI policies can also be drawn from our research. (1) There is room to improve the standard of UI in China by both providing a better basic living for the unemployed and maintaining the positive effect of UI on job search efforts. (2) At present, the levels of UI in China are determined by the local minimum wage standards. However, the policy role of UI in promoting reemployment may be improved by establishing the levels based on the local average wage levels or the local consumption levels. (3) More employment guidance and vocational training need to be provided in the process of issuing UI so that it can play a better role in promoting reemployment. In summary, our paper contributes to the literature in the following three ways. First, we use micro-level survey data from China (CHFS and CTUS) to identify and prove the positive relationship between UI and job search efforts, and thus bridge the gap between the academic and policy perspectives on UI. Second, we show that the mechanism of UI’s impact on job search efforts is covering the job search costs of the unemployed, which extends the literature on dynamic job search theories. Third, our results show that there is a crucial inflection point in the effect of UI on search efforts and prove that the positive effect of UI on search efforts still holds after moderately increasing the levels of UI in China. These findings provide a robust scientific basis for the further improvement of the UI system in China.
Global value chain, industrial agglomeration and firm productivity’s interactive effect
SU Danni;SHENG Bin;SHAO Chaodui;CHEN Shuai
Economic Research Journal,2020,Vol 55,No. 03
Since the 1980s, the global value chain (GVC) characterized by the “global deconstruction of production” and “global integration of trade” has expanded rapidly. Since the reform and opening up, and especially since joining the WTO in 2001, China has become increasingly integrated into the GVC, and its position and role in the GVC have changed significantly. At the same time, the agglomeration of the domestic economy has rapidly increased, becoming an important symbol of China’s economic growth miracle. Obviously, in this interactive process of deepening domestic economic agglomeration and increasing participation in the GVC, China’s firms serve as part of the production system of domestic large-scale local industry clusters and of the production system of the intricately interwoven GVC. Thus, this raises the question of what kind of interactive relationship exists between the GVC and domestic local industrial clusters for firms, and what impact this interaction has on firms’ production performance. These questions highlight important theoretical and policy issues relating to the overall situation of the domestic and foreign markets and resources from the perspective of GVC. This paper is the first to combine the GVC-led international production system and the agglomeration of local industries under the domestic production system in a unified framework. This framework is used to construct an interactive mechanism of the GVC, industrial agglomeration, and firm productivity. This mechanism is then used to empirically analyze China’s manufacturing firms from 2000 to 2007 on the basis of a comprehensive firm GVC index that includes division position, upstream participation, and downstream participation. The results show that the higher the division position in the GVC, the higher the firm’s productivity will be. However, the implementation of strategic isolation by using “double barriers” to block the mutual flow of resources and the mutual imitation of ability weakens the positive spillover of agglomeration to firm productivity. With respect to the different ways of embedding in the GVC, the higher the rate of participation in the upstream GVC, the weaker the spatial correlation with the local industrial clusters will be, and the higher the rate of participation downstream, the stronger the spatial correlation with the local industrial clusters will be. Further penetrating into the three spatial spillover channels of agglomeration, we have found that the different ways of embedding in the GVC have heterogeneous productivity effects mainly through labor pool and knowledge spillover, yet input sharing does not play a role. This results in the binary segmentation structure of “upstream embedding–downstream embedding” interacting with the domestic production system from the view of GVC. The findings of this paper have strong policy implications for breaking the binary segmentation of China’s production system against the background of the GVC and improving the overall quality of the domestic and foreign markets and resources. The government should actively guide and strengthen the strategic investment in cultivating talent, build an effective platform for knowledge exchange and talent cooperation, and promote a spatial coordination pattern of strong with weak and strong-weak cohesion among firms, thus forming an endogenous GVC upgrade path of “single firm–whole industry–whole country.” This paper makes a number of contributions to the literature. First, after considering the details of factors such as indirect imports, return value added, and indirect value added exports using China’s customs data and World Input-Output Database, we attempt to construct and measure three indicators of firm participation in the GVC, namely the GVC division position, GVC upstream participation, and GVC downstream participation, to fully reveal the depth and breadth of firm participation in the GVC. Second, drawing on Brandt et al. (2012), this paper presents a more detailed and scientific processing of China’s industrial firm level data, and matches the data with China’s customs data to empirically test the interactive mechanism of the GVC, industrial agglomeration, and firm productivity. At last, based on Marshall’s externality theory, the paper further explores the driving forces behind the interactive relationships between firm participation in the GVC and local industrial clusters from the perspective of labor pool (“people”), input sharing (“objects”), and knowledge spillover (“ideas”).
Why tax cuts cannot reduce the corporate burden: information technology, taxation capacity and corporate tax evasion
ZHANG Kezhong;OUYANG Jie;LI Wenjian
Economic Research Journal,2020,Vol 55,No. 03
Tax cuts are an important means of implementing proactive fiscal policies and promoting economic recovery. Faced with the double pressure from the international wave of tax cuts and the domestic economic downturn, the Chinese government recently introduced a series of tax reduction policies. However, the actual tax burden of enterprises remains relatively high, and the tax reduction is not obvious. This paper explores why tax cuts have been unable to reduce the corporate burden in China from the perspective of the tax capacity improvement stemming from technological advancements in information regulation. In this paper, the authors introduce the technology of information regulation to the traditional “A-S tax evasion” model to explain why technology advances in information regulation increase the government’s ability to collect tax, which in turn increases the cost of tax evasion and reduces tax evasion by enterprises. The authors then use microdata on listed companies from 2008 to 2016 and the Golden Tax-III project as a “quasi-natural experiment” to verify the theoretical predictions. The results show that technological advancements in information regulation have effectively reduced opportunities for tax evasion. To address endogeneity concerns, four robustness tests were conducted. First, the authors conduct counterfactual analysis to verify that the parallel trend assumption is satisfied, which eliminates the interference of the expected effect and prior factors on the benchmark results. Second, the authors conduct detailed analyses of the “replacing the business tax with VAT” policy and the tax reduction policy to ease the concerns related to the effects of confounding factors during the sample period. Third, the authors replace the indicators of corporate tax evasion to reduce the measurement error of the core variables as much as possible. Finally, the authors conduct a non-parametric permutation test to exclude the possibility of random results. The heterogeneity analysis reveals that private enterprises with a stronger motivation for tax evasion and enterprises supervised by local tax bureaus are more affected by the tax cuts. Moreover, the effect of tax evasion reduction mainly focused on corporate income tax. The policy effect of the Golden Tax-III project is more significant in areas with higher fiscal revenue targets, which indicates that the improved information supervision capabilities can help local governments to complete their fiscal revenue tasks. In the extended analysis, the authors examine the impact of technology advances in information regulation on corporate performance and fiscal revenue. The authors find that the implementation of the Golden Tax-III project significantly increases the actual tax burden of enterprises. These results show that although the improved taxation capacity reduces the possibility that enterprises will engage in tax evasion, it largely offsets the positive effects of the tax reduction policies in the same period. A reasonable explanation is provided for the current phenomenon whereby tax cuts cannot reduce the corporate tax burden. Furthermore, the increase in the actual tax burden caused by the technology advances in information regulation leads to a decline in corporate profitability and slows down the rate of the expansion of assets, which have negative impacts on business operations. Therefore, it is vital to reduce the nominal tax rate of enterprises to a reasonable extent in light of the improved taxation ability caused by the technology advances in information regulation. Moreover, the technological advancements in information regulation have increased fiscal revenue, which signals possibilities for lowering the nominal corporate tax rates and optimizing tax policies in the future. This paper makes three main contributions to the literature. First, this paper examines the impact of emerging technologies such as big data and cloud computing on tax collection and supervision and identifies the causal relationship between information supervision capability and corporate tax evasion. Second, this paper introduces technological advancements in information regulation to the traditional “A-S tax evasion model,” which provides a more comprehensive perspective on the “audit-punishment” taxation strategy. Third, this paper provides a reasonable explanation of why tax cuts cannot reduce the corporate tax burden.
