Hukou Reform, Urban Fiscal Policy, and Migration in China; Jipeng Zhang (Southwestern University of Finance and Economics)

Abstract

We documents the changes in China's Hukou reform before and after 2014 based on a unique data set of Hukou policy documents from Chinese cities between 2000 and 2016. We construct a Hukou registration index to measure the stringency of local Hukou qualification in Chinese cities. There are four main channels for migrants to get local urban Hukou: investment, home purchase, talent program, and employment. The requirements of the four channels have large variations across different tiers of cities over time. First‐tier and some second‐tier cities set high criteria for local Hukou registration that have become more stringent over time, while other cities have much lower requirements. The point account system for local urban Hukou registration shows that large cities have differentiated preferences over workers.

Temporary migrants, different from permanent migrants who obtain full Hukou residency rights, have not enjoyed the same access to local public goods and services as city residents. In particular, unequal access to educational opportunities implies that children of migrants have lower levels of human capital accumulation than children of residents. The internal migration controls, therefore, create barriers to mobility across the income and wealth distributions within China. We develop a spatial overlapping generations model with heterogeneous households to study the feasibility of alternative internal migration policies that offer the potential of decreasing the inequality within China while at the same time increasing the level of human capital accumulation in the economy. We show that these reforms are feasible, but require significant tax increases to offset the reduction of the positive fiscal externalities provided by migrants.

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