The Journal of World Economy 2023, No.1
Fiscal Investment, Incentive Compatibility and Reform of China’s Disease Prevention and Control System
Du Chuang
Abstract：This paper establishes a framework for analysing changes in contemporary China’s disease prevention and control system and the direction of further reform through the application of the incentive theory. Based on multitasking balance issues, the optimal disease prevention and control system is considered to be a multitasking “incentive system”, in which internal elements must be coordinated and complement each other to achieve a balance of multitasking incentives. As an incentive system, the disease prevention and control system is influenced by a number of external conditions, such as the fiscal system and the disease spectrum. Changes in external conditions cause institutional changes in the disease prevention and control system. The result of such institutional changes is an overall evolution of the incentive system, the process of which includes three progressive stages. The main theoretical conclusions are demonstrated by investigating empirical data on the evolution of China’s disease prevention and control system since 1949. The future trend is expected to consist of comprehensive reforms with a focus on the management system, i.e., from the territorial management system to a vertical management system, to increase the intensity of incentives based on fiscal compensation.
Key words：disease prevention and control system, fiscal investment, incentive compatibility, incentive system, institutional change
JEL codes：H51; I18; P36
Welfare Effect and Spatial Deconstruction of China’s Value Chain: The Perspective of Dual Circulation
Shao Chaodui; Su Danni
Abstract：This paper first constructs a value chain spatial-equilibrium model from the interaction of multi-stage production and labour mobility to quantitatively analyse the welfare effect and spatial distribution of China’s provinces participating in the value chain. The counterfactual results show the following. (1) Changes in China’s trade cost from 2002-2012 display trending characteristics of widening the welfare change interval and the regional characteristics, from which the chain benefits are skewed towards the central and western regions in multi-stage production, causing China’s overall welfare to increase by 2.71%. This is mainly due to changes in the cost of domestic trade. (2) The deconstruction of the complete spatial trajectory of the value chain shows that NVC plays a leading role in the dual circulation of the value chain, while the eastern region (especially Guangdong, a typical province) plays a key role in linking the NVC circulation. When NVC and GVC circulations are closed respectively, it is observed that there is no localisation trend of self-closure in any provinces or regions. (3) NVC can largely withstand the adverse impacts of external shocks on China’s welfare, and there is still plenty of room for further internal reforms by removing internal trade and migration barriers to improve the division of labour and the benefits of NVC in the future. (4) As multi-stage production can take full advantage of regional comparative advantages, the influence of the migration interaction mechanism induced by changes in trade costs on multi-stage production is less than that on roundabout production.
Key words：multi-stage production, national value chain (NVC), value chain dual circulation, migration, trade welfare
JEL codes：F10; R12; F16
Foreign Output Fluctuations, Inflation, and Flattening of the Phillips Curve in China
Zhu Zixiang; Deng Xiang
Abstract：According to the global inflation hypothesis, as economic openness decreases, the impact of foreign economies on domestic inflation gradually gives way to that of the domestic economy, which is closely related to China’s “double-loop” development pattern. The paper begins with an indirect analysis of the Phillips curve in China using a time-varying parametric vector autoregressive model. The results show that foreign output shocks positively affect domestic inflation, but this effect weakens after 2010. In recent years, foreign output has shown signs of “decoupling” from domestic inflation. Counterfactual analysis suggests that tight monetary policy and rising import price inflation are insufficient to explain the mild cyclicality of inflation in China. To explain the empirical findings, we construct a medium-sized open economy model. Numerical analysis shows that the cyclical sensitivity of domestic inflation to foreign output weakens as trade openness declines. However, the cyclical sensitivity of domestic inflation to domestic output does not change significantly as trade openness declines.
Key words：globalization, inflation, Phillips Curve, open economy model
JEL codes：E31; F41; F62
Information and Communication Technology, Routine Task and Wage Polarization
Chen Cen; Zhang Caiyun; Zhou Yunbo
Abstract：The technological revolution represented by the application of information and communication technologies (ICT) has replaced the employment of many middle-income groups performing routine tasks, leading to the problem of wage polarization. Based on the extended task model, this paper analyses whether ICT causes wage polarization at the theoretical level. Empirical evidence based on the China Migrants Dynamic Survey confirms the existence of wage polarization. The results of the study in this paper show that ICT can affect wages through the substitution of labor. This substitution not only weakens the role of ICT progress at the city level in improving wages, but also strengthens the negative impact of ICT progress on wages at the industry level. The adverse impact of this substitution on wages is particularly prominent in the routine task labor group, leading to a slower growth rate of wages for its type of labor, and thus to the phenomenon of wage polarization. This research provides new theoretical perspective and empirical evidence to identify the wage polarization brought about by ICT development.
Key words：information and communication technologies (ICT), task model, routine tasks, wage polarization
JEL codes：J24; J31; O33
Minimum Wage, Industrial Robots and Corporate Exit
Li Lei; Ma Huan; Xu Gang
Abstract：This paper constructs a dataset of industrial enterprises across provincial border city pairs, combines national data from the business register to accurately identify the year of the industrial enterprise exit, estimates the impact of the minimum wage increase on enterprise exit, and examines the moderating effect of enterprises’use of industrial robots. The results of the study indicate that an increase in minimum wage leads to an increase in the probability of exit, and enterprises’use of industrial robots can ultimately eliminate the exit risk caused by the increase in minimum wage. The paper also validates these results using macro data from counties and districts across provincial borders, showing that the findings are robust. The mechanism study reveals that the exit risk is mitigated by the cost-saving and productivity- enhancing effects of the use of industrial robots. The findings of this paper present strong policy implications for“stable enterprises”and smart industrial transformation.
Key words：corporate exit, minimum wage, industrial robots, cost effect, productivity effect
JEL codes：J38; O33; L25
The Effect of Information Friction on Children’s Non-Cognitive Skills Development
Wu Jia; Zhang Yuxia; Wu Guansheng
Abstract：From an imperfect information perspective, this study analyses how information friction between parents and children and parents’ and children’s belief distortion affect children’s non-cognitive skills. The results demonstrate that a high level of information friction between parents and children significantly decreases children’s non-cognitive skills. The negative effect of the children’s self-belief distortion is greater than that of parents’ belief distortion. The mechanism analysis shows that the parents’ belief distortion decreases the parents’ time and educational resources dedicated to their children. The children’s self-belief distortion causes them to spend less time studying and doing housework and more time playing. These findings help to understand why even among wealthy parents, the amount of investment in their children’s education still deviates from the optimal level.
Key words：information friction, parental belief distortion, children’s self-belief distortion, non- cognitive skills
JEL codes：J24; J13; J20
Public Debt Liquidation and Corporate Investment: A Quasi-Natural Experiment Based on Special Supervision
Li Zengfu; Li Mingjie; Tang Xudong
Abstract：This paper examines the impact of the State Council’s special supervision action aimed at clearing government arrears on the long-term investment of private enterprises using the difference-in- differences technique. The study finds that special supervision for government arrears clearance significantly increases the long-term investment of private enterprises in areas under supervision. At the same time, the mechanism of the effect lies in the fact that, the special supervision, on one hand, improves the internal finance of enterprises, which manifests itself in the form of increased cash flow in operational activities and faster asset turnover and, on the other hand, improves the external finance of enterprises, which manifests itself as an increase in commercial credit. The effect is more pronounced among private enterprises with more robust operations, with greater financing constraints, in industries supported by central industrial policies and in regions with low levels of marketisation. This paper identifies the causal relationship between government arrears and long-term corporate investment based on the research scenario of “decentralisation” reform and business environment optimisation, clarifying the mechanism of special supervision, which is important for the government in strengthening macro-control and further effectively promoting the stable development of finance and the economy.
Key words：special supervision, government debt, commercial credit, corporate investment
JEL codes：C33; H32; H77
Bankruptcy Trial Reform, Fiscal Pressure Relief and Corporate Tax Burden Alleviation
Pan Yue; Ji Xiang’ge; Ning Bo; Chen Yiping
Abstract：Based on the actual situation of the establishment of liquidation and bankruptcy trial divisions in China, this paper analyses the potential impact of bankruptcy trial reform on “tax cuts and tax burden reduction” of corporations based on the relationship between local fiscal pressure and corporate tax burden. The results show that bankruptcy trial reform has significantly reduced the corporate tax burden in the region. The mechanism test shows that the bankruptcy trial reform can relieve the fiscal pressure of the local government by decreasing fiscal spending and increasing fiscal revenues, reducing the taxation efforts of the local government, and thereby alleviating the tax burden on corporations. From the perspective of the reform results, the tax reduction effect of bankruptcy trial reform is more obvious when the chief of the local high court comes from the central government or is familiar with the local situation. Bankruptcy trial reform works better when there is a poor judicial environment or many zombie firms in the local area. This paper not only helps market entities to understand the economic value of bankruptcy trial reform more comprehensively, but also provides a useful policy reference for China to continuously improve the market exit mechanism, promote the implementation of the “tax cuts and tax burden reduction” policy and stimulate regional economic vitality.
Key words：bankruptcy trial reform, liquidation and bankruptcy trial division, fiscal pressure, corporate tax burden
JEL codes：H20; H71; K40
Trade Liberalisation, Private Benefits and Managerial Efficiency: Theory and China’s Evidence
Xie Hongjun; Chen Xiao; Zhang Zhengchu
Abstract：This paper first analyses the heterogeneous effects of intermediate and final goods trade liberalisation on firms’ managerial efficiency by incorporating the agency problem between owners and managers into a two-country general equilibrium model. With a non-zero agency cost, owners cannot perfectly monitor managers’ behaviour. The “cost effect” and the “terms-of-trade effect” of intermediate goods liberalisation reinforce managers’ private incentives, while the impact of final goods liberalisation on managerial efficiency depends on the relative strength of the “beggar-thy-neighbour effect” and the “terms-of-trade effect”. Empirically, this paper uses firm-level data from China to construct valid indicators for managerial efficiency, which not only confirm that liberalisation of intermediate goods is significantly reduced, while liberalisation of final goods enhances managerial efficiency, but also reveal the mechanism by which trade liberalisation affects managerial efficiency through profits and prices. This study theoretically and empirically investigates the managerial efficiency decisions in an open economy, which has policy implications for understanding the corporate governance role in trade liberalisation, improving firms’ managerial efficiency, and strengthening the foundation of microeconomic growth.
Key words：managerial efficiency, trade liberalisation, agency costs, private benefits
JEL codes：F13; F15; F16