Migration Controls, Fiscal Externalities, and Access to Educational Opportunities in China
There have been large differences in economic development among regions and cities in China since the country embraced market-based reforms in the late 1970s. This in-equality in spatial development has caused large internal migration flows as households from rural areas have sought economic opportunities for themselves and their children in urban areas. We document that internal migrants, who did not obtain full residency rights, have not enjoyed the same access to local public goods and services as city residents. In particular, unequal access to educational opportunities implies that children of migrants have lower levels of human capital accumulation than children of residents. The internal migration controls, therefore, create barriers to mobility across the income and wealth distributions within China. We develop a spatial overlapping generations model with heterogeneous households to study the feasibility of alternative internal migration policies that offer the potential of decreasing the inequality within China while at the same time increasing the level of human capital accumulation in the economy. We show that these reforms are feasible, but require significant tax increases to offset the reduction of the positive fiscal externalities provided by migrants.