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The effect of inequality on the long-term economic growth in China

Wang, Wenjing 2024. The effect of inequality on the long-term economic growth in China. PhD Thesis, Cardiff University.
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Abstract

This thesis presents an analysis of the impact of wealth inequality on the economic growth of China, utilizing a heterogeneous-agent growth model. The model postulates that individual productivity growth is enhanced by dedicating time to entrepreneurship, which is more accessible to rich groups due to lower associated costs. The hypothesis suggests that concentrating wealth among the affluent theoretically boosts their entrepreneurial activities, consequently enhancing overall economic growth. The study utilizes China data spanning from 1978 to 2019, employing the Indirect Inference method to validate the model. Empirical findings indicate a stable relationship between wealth inequality and economic growth, with the model simulations aligning well with the main characteristics of the China economy. Results show that wealth inequality positively influences long-term economic growth. However, this poses a policy dilemma, as efforts to reduce inequality through redistribution measures like taxation could potentially slow economic growth. The study observes that as redistribution tax rates increase, the detrimental impact on growth intensifies, suggesting that a moderate taxation approach may be more beneficial. Comparative analysis of different tax regimes reveals a preference for taxation that transfers income from the wealthy to the less affluent. This research offers critical insights for policymakers grappling with the balance between inequality reduction and economic growth stimulation.

Item Type: Thesis (PhD)
Date Type: Completion
Status: Unpublished
Schools: Business (Including Economics)
Subjects: H Social Sciences > H Social Sciences (General)
Uncontrolled Keywords: heterogenous-agent model, inequality, redistribution, economic growth, indirect inference
Date of First Compliant Deposit: 16 August 2024
Last Modified: 16 Aug 2024 14:55
URI: https://orca.cardiff.ac.uk/id/eprint/171293

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