The dynamics of redistribution, inequality and growth across China's regions

Xiaoliang Yang, Lucy Barros, Kent Matthews, David Meenagh

Research output: Journal PublicationArticlepeer-review

1 Citation (Scopus)


China's experience has triggered debate over a trade-off between aggregate growth and regional equity. We develop a three-region model of China where local government decisions are driven by central government tax transfer instruments. These affect local TFP dynamics and regional inequality. We find regional asymmetry in how transfers are awarded. Transfer policies pursued since the 1994 tax-sharing reform prevented a 15% rise in regional inequality, at an 8% cost to aggregate GDP. Temporarily reducing local government non-tax fees on private firms in poorer regions lowers regional inequality permanently at no aggregate growth cost, as would imposing uniformity in central transfer rules.

Original languageEnglish
Pages (from-to)613-637
Number of pages25
JournalJournal of Policy Modeling
Issue number3
Publication statusPublished - 1 May 2024


  • China
  • Fiscal decentralization
  • Growth
  • Local Government
  • Redistribution
  • Regional inequality

ASJC Scopus subject areas

  • Economics and Econometrics


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