We quantify the macroeconomic and welfare effects of a social health insurance reform that occurred in China in 2016 using a two-sector model with endogenous rural-to-urban migrant workers. The calibrated model mimics the rural-to-urban migration and rural-urban wage gap from 2007 through 2016. We find that the health insurance reform depresses rural-to-urban migration and leads to reallocation of labor and capital in both the rural and urban sectors. As the result, we find that the consolidation of premium and reimbursement expands the rural-urban wage gap by approximately 6.8% but universal health insurance coveragenarrows the rural-urban wage gap by approximately 0.9%. Keeping the government deficit unchanged, the welfare results favor universal health insurance relative to pure consolidation.
How does the capacity removal policy affect China’s economy? To quantify the policy outcomes and costs, a four-sector model with vertical market structures is built. The calibrated model shows that, to achieve the policy goal, 10% of equipment operation in the high energy-consuming sectors must be shut down. This policy leads to an improved energy structure in which total energy consumption drops by 4.75% at the cost of a contraction in economic growth, where the total output declines by 12.31%. The numerical experiments find that the optimal policy is to limit the production scale in both the iron/steel industry and the fossil energy industry, closing 9% and 7% of the production, respectively, since doing so minimizes output loss and improves the energy structure. This paper quantifies the impact of the current capacity removal policy and provides policy alternatives to reach the same policy target with a lower output loss.
We evaluate a reform of the US tax system switching to consumption taxation instead of income taxation. We do so in an environment that allows for progressivity of consumption taxes through differential tax rates between basic and non-basic consumption goods. The consumption tax system that maximizes aggregate welfare involves a 4% subsidy on basic consumption goods and a 68% tax on non-basic goods. Such a tax scheme generates 10% higher output in the long run, with a small increase in inequality. Nonetheless, the bench- mark with progressive income taxes and mild consumption taxes provides higher welfare on aggregate in the steady state, and even more so if we consider the transition.