Economic consequences of public policies in China: Three essays

My dissertation quantifies the economic consequences of public policy on the private sector. In particular, three important questions are addressed in the general field of public economics: (1) What is the return to public infrastructure investment? (2) How much tax evasion is there? and (3) How does taxation affect production incentives? For each of these questions, I use panel data in quasi-experimental settings in China.; The objective of Chapter I is to measure the economic benefits of infrastructure investments. I consider an investment in China that doubled the tracks of a one-thousand-mile-long railroad in 1994. I first estimate the impact of this investment on price differences across regions and find that the investment significantly reduces interregional price gaps. I then derive a welfare measure that transforms the estimated price-gap effect into welfare estimates. I find that the internal rate of return of the investment may significantly exceed the costs of capital in China.; Chapter II examines why state-owned enterprises (SOEs) seem to be more productive than collectives in China. It is shown that this seeming productivity gap could be due to differences in misreporting (for tax evasion purpose) between SOEs and collectives. Using firm-level electricity usage to approximate firms' true outputs, I find that large SOEs underreport their outputs to a lesser degree than large collectives do. Furthermore, this cross-ownership misreporting difference widens as firm size increases.; Chapter III provides new econometric evidence for the effect of profit-sharing on the productivity of business firms. Employing a rich panel data set of state-owned manufacturing firms between 1981 and 1989, I find that the adoption of an income tax scheme lowered the productivity of SOEs. This incentive effect did not happen immediately. Instead, it took about two years. I further find evidence that this effect took place through reducing retained profits and changing the employee compensation structure.