International Economic Review
Volume64, Issue1, February 2023, Pages 57-93
The Impact of Local Fiscal and Migration Policies on Human Capital Accumulation and Inequality in China
Holger Sieg a, Chamna Yoonb, Jipeng Zhangc
a University of Pennsylvania and NBER, U.S.A.
b Seoul National University, Korea
c Shandong University, China
We develop and estimate a spatial overlapping generations model with heterogeneous households to study the feasibility of a recently proposed reform of internal migration policies that offers the potential of decreasing inequality within China. We find that this policy change significantly increases the college attainment of migrant children born in rural areas and, therefore, promises to increase the number of high-skill workers. However, it requires significant tax increases to offset the reduction of the positive fiscal externalities provided by migrants.