Publication
abstract
Abstract: This paper identifies productivity gains from trade by studying the manipulation behavior of firms in response to regulatory policies on international trade in China. Bunching estimates show that participation in international trade increases firm productivity. The productivity gains increase over time, indicating dynamic learning from trading. Further exploration shows no effects on R&D investment, product rationalization and markup. Young firms and nonstate-owned firms (non-SOEs) gain more from participating in trade. Workers share productivity gains through increased wages but not from increased employment.
Working Papers
- Identifying Causal Effects under Kink Setting: Theory and Evidence (with Yi Lu, Huihua Xie). Working Paper. [Draft]
Abstract
Abstract: This paper develops a generalized framework for identifying causal impacts in a reduced-form manner under kinked settings. The causal inference estimation using a bunching framework was initially developed by Diamond and Persson (2017) which deals with notch designs. Many empirical applications of bunching designs involve kinked settings. We discuss causal inference estimation in kinked settings with sharp bunching and then extend to the scenarios with diffuse bunching, relabeling behaviors, and optimization frictions. Applying the proposed approach, we estimate how medical subsidies affect patients' behavior in China.
Abstract
Abstract: This paper explores a kinked tax policy in China which sets a tax deduction limit proportional to firm-level average wage. Using the bunching method reveals that firms decrease the ratio of skilled to unskilled labor in order to reduce tfirm-level average wage. Based on a stylized model of employment, we infer the elasticity of substitution between skilled and unskilled labor, which is a key parameter used in models with efficient units of labor (e.g. CES production function).
- Does Employee Training Boost Productivity? Evidence from Kinks (with Yi Lu, Huihua Xie). Working Paper. [Draft coming soon]
Abstract
Abstract: On-the-job training is an important channel to human capital accumulation and economic growth. However, a lot of firms do not invest in such training in early 2000s China. Common concerns may involve employee turnover and their increased bargin power post training. In this study, we study the effect of employee training on firms' performance. We deal with endogeneity issue by exploitting a kinked policy, where firms' training expenses are deductible up to a fixed share of the labor cost. We find that a lot of firms adjust their training expenses upwards and bunch at the deduction limit. Using a novel causal estimator under kinked settings (Lu et al., 2023), we show that increase in training expenses lead to higher output, revenue and productivty. We also found evidence that some firms label administrative cost as training expenses to take adavantage of the tax deduction. Based on a stylized model of firms' training decisions and the causal estimates, we calibrate the parameters which governs the cost of relabelling and the productivity returns to training. Then, we conduct policy simulations and show that the tax deduction point should be raised from 2.5% to 8%. Different from China, most countries allow full deduction in training expenses but only for training related to skills in the current jobs. We show that under potential relabelling, a kinked tax deduction policy with a larger base is more efficient than full deduction with a narrower base.
Work in Progress
- Optimal Taxation under Drip Pricing: Evidence from Tmall.com (with Jiasheng Li, Yi Lu , Binzhen Wu). Work in Progress.
ABstract
Abstract: Firms often charge lower markup on the base products and higher markup on the add-ons, when the base products and the add-ons have to be matched and the cost of add-ons are less salient. Examples include printer and ink, blood glucose monitoror and test strips, water/air purifiers and filters, etc. Such drip pricing behavior takes advantage of consumers' inattention. We study heterogeneity in tax passthrough in this setting. Using high-frequency transaction data from Tmall.com from Alibaba and by exploring the value-added tax cut reform, we build a novel difference-in-difference set up and found that prices of the base products decreased sharply in respond to the tax reduction, generating over-passthrough in some cases. By constrast, prices of the add-ons did not change. A stylized model which features the ``lock-in'' effect in the add-ons market once the base product is bought and a share of naive consumers who overlook the cost of add-ons explains such pattern. We are in the process of conducting counterfactual analysis to explore the optimal tax reduction scheme under drip pricing.
- How Much do Consumers Benefit from Value Added Tax Cuts? Evidence from Tmall.com (with Jiasheng Li, Yi Lu , Binzhen Wu). Work in Progress.
Pre-PhD Work
- Spatial Spillover Effects in Determining China's Regional CO2 Emission Growth (with Bo Meng, Robbie Andrew, Hao Xiao, Jinjun Xue, Glen P. Peters), Energy Economics (2017). [Draft]
Abstract
Abstract: This study proposes an alternative input–output based spatial structural decomposition analysis to elucidate the importance of domestic regional heterogeneity and inter-regional spillover effects in determining China's regional CO2 emissions growth. Our empirical results, based on the 2007 and 2010 Chinese inter-regional input–output tables, show that changes in most regions' final demand scale, final expenditure structure, and export scale have positive spatial spillover effects on other regions' CO2 emissions growth; changes in most regions' consumption and export preference help reduce other regions' CO2 emissions; changes in production technology and investment preferences may exert positive or negative effects on other region's CO2 emissions growth through domestic supply chains. For some regions, the aggregate spillover effect from other regions may be larger than the intra-regional effect in determining regional emissions growth. All these facts can significantly help provide a better, deeper understanding of the driving forces behind the growth of regional CO2 emissions and can thus enrich the policy implications concerning a narrow definition of “carbon leakage” through domestic inter-regional “trade” as well as a relevant political consensus about responsibility sharing between developed and developing regions inside China.