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Health Shocks, Village Elections, and Long-Term Income: Evidence from Rural China

55 Pages Posted: 20 Nov 2006 Last revised: 1 Sep 2010

Li Gan

Texas A&M University - Department of Economics; National Bureau of Economic Research (NBER)

Lixin Colin Xu

World Bank - Development Research Group (DECRG)

Yang Yao

Peking University - China Center for Economic Research (CCER)

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Date Written: November 2006

Abstract

Using a sample of households in 48 Chinese villages for the period 1986-2002, this paper studies the dynamic effects of major health shocks on household income and the role played by village elections in mitigating these effects. Our results show that in the first 15 years after a shock, a shock-hit household on average falls short of its normal income trajectory by 11.8% and its recovery would take 19 years. Based on the premise that shock-hit families impose negative externalities on richer families by borrowing from them, our political economy model predicts that the outcome of village elections would differ from that of a standard median voter model in that the elected village leaders tend to adopt pro-poor policies. Our empirical study finds that villages are more likely to establish a healthcare plan after the election is introduced. In addition, village elections reduce the probability of a household to borrow by 16.7% when one of its working adults is seriously sick. As a result, they reduce more than half of the negative effect of a health shock on household income.

Suggested Citation

Gan, Li and Xu, Lixin Colin and Yao, Yang, Health Shocks, Village Elections, and Long-Term Income: Evidence from Rural China (November 2006). NBER Working Paper No. w12686. Available at SSRN: https://ssrn.com/abstract=942981

Li Gan (Contact Author)

Texas A&M University - Department of Economics ( email )

5201 University Blvd.
College Station, TX 77843-4228
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Lixin Colin Xu

World Bank - Development Research Group (DECRG) ( email )

1818 H Street, N.W.
MC 3-427
Washington, DC 20433
United States
202-473-4664 (Phone)
202-522-1155 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/cxu

Yang Yao

Peking University - China Center for Economic Research (CCER) ( email )

Beijing, 100871
China

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