Essays on China’s Household Saving Rate and Education Policy

Abstract

This essay contains three essays in applied microeconomics. The first and second paper study the China’s household saving rate and the third studies the economic policy in China.

In Volume 119 of the Journal of Political Economy, a paper uses data from the Chinese Household Income Project (CHIP) 2002 and finds that increasingly unbalanced premarital sex ratio raise household saving rate of son-families and the rapid increase in premarital sex ratio can potentially explain about half of China’s household saving rate increasing during 1990-2007. This paper reexamines the competitive saving motive. We first use local sex ratio inferred from 2000 China population census and same dataset CHIP 2002 to find the competitive saving motive only holds for the household in rich counties. We then use data from the China Household Finance Survey (CHFS) to show that competitive holds for the rural sample. The cross-regional evidence indicates that the competitive saving motive exists, but only in the rural area. By estimation and computation, an increase in sex ratio from 1985 to 2015 can explain about 28% of the actual increase of the increase of rural saving rate.

The second paper studies the role of income inequality interacting with liquidity constraints in explaining the high household saving rate in China. The predictions implied by a simple lifecycle heterogeneous agent model are consistent with data facts. Using three large nationally representative data sets, China Household Finance Survey (CHFS), China Family Panel Studies (CFPS), and Chinese Household Income Project (CHIP), we find robust evidence that (1) the rich save more; (2) the poor are more likely to face liquidity constraints, and the effect of liquidity constraints on household saving rate is significantly positive; (3) income inequality has a significant positive effect on aggregate household saving rate; and (4) the marginal propensity to consume out of transitory income for poor households is significantly higher than for rich households. Our study provides a policy implication that economic policy of reducing income inequality would lower the aggregate saving rate and thus become a policy of economic transition and growth.

The third paper estimates the effect of the "Program of College Admission for Poor Counties" on high school education using data from 86 counties of Gansu province in northwestern China. Applying a difference-in-differences approach, we show that the program significantly increases senior high school entrants by 99-224, and enrollments by 317-586 in per 100,000 population in the poor counties in Gansu after the policy started in 2012. Using the alternative measurement of outcomes, we show that it significantly increases entry rate by 1.3-7.6%, and enrollment rate by 1.2-7.3%. The results are robust to alternative model specifications and outcome measurements. Our findings indicate that this admission policy, which is motivated by addressing unequal access to college, effectively improves schooling at the high school level.