Impacts of In situ Urbanization on Household Disposable Income: Evidence from CHFS
XIAO Wei, LIU Wenhua, XIE Ting
Research Institute of Economics and Management, Southwestern University of Finance and Economics; Institute of Western China Economic Research, Southwestern University of Finance and Economics
Summary:
In recent decades, China has experienced rapid urbanization, during which the spatial size of its cities has expanded substantially. To accelerate its urbanization, for example, China launched a nationwide jurisdiction-adjustment policy in the past decade that incorporated one or several peripheral counties into the central city and expanded the spatial scale of cities. However, the impacts of this government-directed city growth on households are not well investigated in the literature. We fill this gap by examining the causal effects of government-directed city growth on households' disposable income. Since 2010, China has been using city annexation in many prefecture-level regions to promote the New Urbanization strategy. By redefining the counties adjacent to prefectures' central cities as municipal districts, city annexation expands the spatial scale of central cities. Unlike rural counties, where agriculture accounts for a significant share of the local economy, municipal districts focus on industrial and commercial development. Therefore, incorporating a county into the central city promotes the development of non-agricultural sectors and urbanization in the treated counties. Using data from the China Household Finance Survey (CHFS), we investigate the effects of incorporating counties into central cities on individual households, focusing on household disposable income. We utilize data from the CHFS of 2013, 2015, and 2017, along with the difference-in-differences method, to examine the effects of county-city mergers on household disposable income in China, reveal the mechanism underlying these effects, and further explore their role in narrowing income disparity. We report four main findings. First, city annexation significantly improves the disposable income of households in the treated counties by an average of 9.35%. A flexible estimation shows that the disposable income of households in the treatment groups is not different from that of households in the control group before the county-to-district conversion, but it is significantly higher after the conversion. Second, the county-to-district conversion increases household disposable income by increasing wages and industrial/commercial income. Our channel analysis shows that incorporating a county into the central city improves labor market conditions, increases the number of jobs, and stimulates entrepreneurship in the treated counties. Third, the revealed income effects exhibit heterogeneity between counties and households. Entrepreneurship's effects on income exist only in counties that belong to prefectures with developed central cities. In contrast, the conversion's effects on wages are significant only if the central cities are relatively undeveloped. Rural areas with a low level of economic development are more likely to be affected than urban areas. Educated people in the treated counties are more likely to obtain higher wages and industrial/commercial income after the reform than are uneducated people. Finally, incorporating counties into central cities has different income-enhancing effects in households with different income levels. Incorporation has a strong impact on middle-and low-income households but has no significant impact on wealthy households, suggesting that incorporating counties into central cities decreases income disparity within households in the treated counties. We make two contributions to the literature. First, using data from a household survey, we contribute to the literature by examining the effects of the government-directed and planned urbanization policy on the level and structure of household income. This is our main contribution. Previous studies on jurisdiction adjustment focus on its impacts on macro indicators such as urbanization, public goods provision, and economic development. However, the impacts of jurisdiction adjustment on households are not well investigated. Second, our finding that incorporating counties into central cities affects household disposable income through its effects on labor markets and entrepreneurship reveals the mechanisms of jurisdiction adjustment.
Alesina, A., R. Perotti and E. Spolaore. 1995. “Togetheror Separately？ Issues on the Costs and Benefits of Political and Fiscal Unions”, European Economic Review, 39(3-4):751～758.
[32]
Blesse, S. and T. Baskaran. 2016. “Do Municipal Mergers Reduce Costs？ Evidence from a German Federal State”, Regional Science and Urban Economics, 59(7):54～74.
[33]
Breuillé, M. L., P. Duran-Vigneron, and A. L. Samson. 2018. “Inter-municipal Cooperation and Local Taxation”, Journal of Urban Economics, 107, 47～64.
[34]
De Chaisemartin, C. and X. d'Haultfoeuille. 2020. “Two-way Fixed Effects Estimators with Heterogeneous Treatment Effects”, American Economic Review, 110(9): 2964～2996.
[35]
Deshpande, M. and Y. Li, 2019. “Who is Screened out？ Application Costs and the Targeting of Disability Programs”, American Economic Journal: Economic Policy, 11(4): 213～248.
[36]
Ellingsen, T. 1998. “Externalities Vs Internalities: A Model of Political Integration”, Journal of Public Economics, 68(2):251～268.
[37]
Goodman-Bacon, A. 2021. “Difference-in-differences with Variation in Treatment Timing”, Journal of Econometrics, 225(2): 254～277.
[38]
Hanes, N. and M. Wikström. 2008. “Does the Local Government Structure Affect Population and Income Growth？ An Empirical Analysis of the 1952 Municipal Reform in Sweden”, Regional Studies, 42(4):593～604.
[39]
Hanes, N., M. Wikström and E. Wångmar. 2014. “Municipal Preferences for State-Imposed Amalgamations: An Empirical Study Based on the Swedish Municipal Reform of 1952”, Urban Studies, 49(12):2733～2750.
[40]
Heyman F, F. Sjöholm and P G. Tingvall. 2007. “Is there Really a Foreign Ownership Wage Premium？ Evidence from Matched Employer-employee Data”, Journal of International Economics, 73(2):355～376.
[41]
Hirota, H. and H. Yunoue. 2017. “Evaluation of the Fiscal Effect on Municipal Mergers: Quasi-Experimental Evidence from Japanese Municipal Data”, Regional Science and Urban Economics, 66:132～149.
[42]
Kuznets, S. 1955. “Economic Growth and Income Inequality”, American Economic Review, 45(1), 1～28.
[43]
Myck, M. and M. Najsztub. 2020. “Implications of the Polish 1999 Administrative Reform for Regional Socio-Economic Development”, Economics of Transition and Institutional Change, 28(4):559～579.
[44]
Tang, W. and G. J. Hewings. 2017. “Do City-county Mergers in China Promote Local Economic Development？”, Economics of Transition, 25(3), 439～469.
