Essays on Chinese state-owned enterprise reform.

Abstract

Chapter I offers a model of the fund allocation in Chinese State-Owned Enterprises (SOE) and provides an empirical test of the theory using firm-level data. The paper explains why bank loans and grants coexist with self-financing, which SOEs take out loans, and why subsidies on loan interest payments exist. The model is based on heterogeneous SOEs, asymmetric information, and sales taxes. The results show that reforms of enterprise finance must come as a package, suggesting that the interlocking nature of reform measures should be considered in deciding the direction of further policy modification. Chapter II examines how wages and employment in the Chinese state sector have evolved after reform. Using firm-level panel data, we attempt to evaluate the importance of reform measures, market development, and insider forces on wage and employment determination for three broad occupations. We find some evidence that the labor markets have been developed. It is also found that incorporation lowered wages by 15% and improved productivity, though their effect on employment was insignificant. The negative correlation between wages and the incorporation implies that workers in non-incorporated firms have been enjoyed wage premium. This finding suggests that the Chinese government needs to more broadly and intensively adopt measures, such as incorporation, to tackle the rent-sharing problem. Overstating one's tax liabilities and reacting to the balance due upon filing a return are both inconsistent with a standard theory of taxpayer compliance based on expected utility maximization. Chapter III shows that both types of behavior can be consistent with a standard model if the probability of detection depends on the change in reported income across years. When the change in reported income across years affects the probability of detection, taxpayers smooth reported taxable income, which requires overstating of tax liability when income is unusually small. Our model also predicts that taxpayers are more likely to understate tax liabilities when there is a balance due because the balance due represents a temporary high income. We attempt to reinterpret previous findings on tax evasion behavior of US taxpayers.