Migration, Housing Constraints, and Inequality: A Quantitative Analysis of China
44 Pages Posted: 28 Apr 2020 Last revised: 14 May 2021
Date Written: April 27, 2020
We investigate the role of migration and housing constraints in determining income inequality within and across Chinese cities. Combining microdata and a spatial equilibrium model, we quantify the impact of the massive spatial reallocation of workers and the rapid growth of housing costs on the national income distribution. We first show several stylized facts detailing the strong positive correlation between migration flows, housing costs, and imputed income inequality among Chinese cities. We then build a spatial equilibrium model featuring workers with heterogeneous skills, housing constraints, and heterogeneous returns from housing ownership to explain these facts. Our quantitative results indicate that reductions in migration costs and the divergent growth in productivity across cities and skills result in the observed massive migration to developed areas. Combined with tight land supply policies in big cities, the expansion of the housing demand causes the rapid growth of housing costs and increases the inequality between local housing owners and migrants. The counterfactual analysis shows that a migration-based land supply reform with regional transfers or a US-level property tax both lower within-city income inequality, by 34% and 21%, respectively. Meanwhile, both reforms lower national income inequality by 20%. However, only the land supply reform encourages more workers to migrate to higher productivity cities.
Keywords: Migration, Cities, Housing Constraint, Gravity, Inequality
JEL Classification: E24, J61, R23, R31
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