Summary： Xi Jinping's Economic Thought on Socialism with Chinese Characteristics for a New Era is centered on fundamental questions “what kind of socialism with Chinese characteristics the new era requires us to uphold and develop, and how we should go about doing it”. On the basis of the history and practice of the modern socialism with Chinese characteristics, Xi's thought reveals and captures the intrinsic logic and the basic law of the economic development of socialism with Chinese characteristics in the new era, and it also provides a theoretical framework and practical guidelines for the economic development of modern socialism with Chinese characteristics. Xi's work starts with a discussion of the current stage in the great historical process of the construction of socialism with Chinese characteristics in the new era, then analyzes and explains the evolvement of the principal contradiction facing Chinese society in the new era, and related problems and characteristics. It gives a clear answer that the fundamental issue in the construction of socialism with Chinese characteristics in the new era is development, and makes a new understanding and interpretation of “development”.
To address the issue of economic development in modern Chinese socialism, we need to construct a new understanding of development. “The new vision of development” is defined as “the vision of innovative, coordinated, green, and open development that is for everyone”. The outstanding feature of the new vision is an organic unity of three aspects: the Scientific Outlook on Development, deepening reform, and openness of higher standards. The guiding ideology to solve tough problems of development in the new era, leads to implementation of the five-sphere integrated plan. The approach for applying the new vision of development is to develop a modernized economic system.
Developing a modernized economic system needs us to pursue supply-side structural reform as our main task, to develop a modernized industry system, to improve the socialist market economy system, and finally to build an organic integrated economic system that incorporates all aspects of the economy. To sum up, “the new vision of development” requires focusing on the main issue of supply-side reform, promoting the two tasks of development and reform, and building a system that integrates the seven parts of the system.
What are the basic conditions required for building a modernized economic system? On the one hand, the macroeconomic conditions call for the underlying principle of pursuing progress while ensuring stability, of which the key point is handling the relationship between demand management and supply management. On the other hand, institutional exploration conditions require coordinated implementation of the four-pronged comprehensive strategy, deepening reform in fields of economy, law and political system, creating institutional conditions for pursuing the new vision of development, and modernizing China's system and capacity for governance, which are the basic policy and the institutional underpinning for achieving the goal of the five-sphere integrated plan. Meanwhile, core socialist values should be defined clearly and highlighted ethically in informal institutions, to solve the moral disorder that might occur during transformation. The Belt and Road Initiative will support the vision of a “community with a shared future for mankind”, and offer Chinese wisdom and a Chinese approach to addressing the “Thucydides trap”, which will further integrate building the modernized economic system with developing the community with a shared future for mankind.
Improving the wellbeing of the people is the fundamental goal of applying a new vision of development, implementing the five-sphere integrated plan and the four-pronged comprehensive strategy, and developing a modernized economy. The new vision of development will deal with social equity and justice more effectively by sharing. This embodies both the people-centered philosophy of development, and Marxist dialectical materialism and historical materialism, which provides the fundamental force of building socialism with Chinese characteristics under the leadership of the Communist Party of China.
Keywords： New Vision of Development; Modernized Economic System; Supply-side Structural Reform; Pursuing Progress While Ensuring Stability; Institutional Exploration

Summary： In recent years, new environmental inequalities caused by pollution control actions have become an increasingly serious concern in China. The ongoing implementation of government environmental regulation policies has reduced the production of pollutants by industries. However, the income gap between ecological protectors and environmental beneficiaries is continuously widening, and new environmental inequalities have emerged. Among the various measures taken by governments to address the imbalance of income distribution caused by pollution control, the government's eco-compensation mechanism has proved to be an effective method for environmental protection.
There has been widespread consensus on the positive externalities of pollution control; however, the income inequality caused by pollution control has not received sufficient attention. Furthermore, the incentives provided by the government's consumer compensation mechanism for ecological protection and pollution control stakeholders are often overlooked by environmental regulators. It is worth noting that China introduced an environmental protection tax in 2018. However, corresponding regulations on government expenditure have not yet been introduced. Neither the current theoretical research nor the practice of China's environmental governance clearly demonstrate how to balance pollution emission punishment with ecological protection fiscal expenditure.
This study examines the income inequality in China caused by pollution control using the saddle path of the neo-classical model. This saddle path is used for the following reasons. First, unlike the steady state economy model, the saddle path can describe the gradual accumulation of environmental pollution. Second, China's economic development is still in the saddle path stage of the neo-classical model, far from the equilibrium of a steady state. Few studies of China's economic issues adopt the saddle path, as the equilibrium solution for the saddle path of the neo-classical model is very complex. Therefore, this study establishes a theoretical model for the cleaning products, pollution products, and energy production, adds the government's pollution control mechanism, and then uses the shooting method to calculate the equilibrium solution on the saddle path. It also designs an environmental policy portfolio that includes dynamic environmental taxes and government compensation rates, explains the problem of income inequality in pollution control, and identifies more effective government compensation mechanisms.
The study finds that the government should establish a government compensation mechanism that is in line with the dynamic environmental tax that is consistent with the scale of the economy, and should raise compensation for the aggrieved party in ecological protection and pollution control actions so that they are in line with the severity of the income inequality among stakeholders. It also points out that progressively increasing environmental taxes and government compensation rates, which is the best combination of policies on the saddle path, can achieve a triple dividend of sustained economic growth, improved environmental quality, and balanced income distribution. In contrast, excessive government compensation curbs the rate of economic growth and delays the improvement of income distribution. Inadequate government compensation leads to an imbalance in the distribution of income such that larger-scale output does not promote social welfare. Therefore, the Chinese government should establish and improve an eco-compensation mechanism that includes a source of compensation funds, compensation standards, and compensation channels and objects, so that the aggrieved party in pollution control actions can be effectively compensated. This will help reduce the social resistance to environmental remediation and will mobilize the entire community to participate in ecological protection. This will actually solve the new environmental inequality problem without disturbing the path of green economic growth.
Keywords： Environmental Regulation; Income Distribution Imbalance; Government Compensation Mechanism; Saddle Path

Summary： China has been the country with largest number of patent applications and licenses around the globe， accompanying with explosive growth by two digits in the past more than 10 years. The number of patents in China has increased by double figures in the past more than 10 years. However， China has been a big country in term of patent quantity， but not a strong country in term of patent quality， and even a country in the forefront of the world in term of independent innovation capability. Is it the signal of the promotion of patent quality and the capability of independent innovation that the explosive growth of patent in China？ Are there patent bubble and patent illusion in China？ This has aroused widespread concerns and doubts from the media and researchers at home and abroad. Meanwhile， this is also a major practical problem that must be explored and answered before China's policy makers and scholars.
What needs to be highly concerned is， behind the explosive growth of China's patent number， besides the promotion factors of the increase of firms' independent innovation ability， it also conceals a series of government policies with Chinese characteristics. Do those policies result in the reduction of China's patent quality， and cause the occurrence of patent bubble and patent illusion？ More importantly， from the current status of China， in order to carry out the national innovation driven development strategy， promote the independent innovation ability， from central to local governments at all levels of China， implement innovation pursuit strategy aimed at encouraging patent growth at different degrees. All of those strategies can be concentrated on various of financial support policies with government funds by different levels of governments especially provincial government， in response to the innovation pursuit strategy and patent promotion plan established by central government， for patent applications and grants by local firms and natural persons. And the research questions induced by those polices are， what kind of potential effects of various government fund support policies aimed at encouraging patent application and grant by different levels of governments？ Do those policies show significant inhibit effect on the promotion of patent quality of China's firms？ The explorations and answers to those questions， are not only closely related to the validity and direction of the China's innovation driven development strategy， but also closely related to China's fundamental goal of achieving sustainable economic growth in the context of “new normal”.
On the foundation of the reference， improvement， and expansion of existing literature on the design of econometric model， the measurement of patent quality at firm level and the definition of patent subsidy and promotion policies at provincial level. We have those core findings： from the perspective of patent application， the various categories and stages of patent subsidy， support and award polices at provincial level， have significantly negative effect and inhibit effect on firms' patent quality. From the perspective of patent grant， the various categories and stages of patent subsidy， support and award polices at provincial level， have no significant inhibit effect or promotion effect， but a certain degree of neutral effect on patent quality. In addition， either using OLS or FE estimation approaches and Heckman two-stage estimation strategy for the correction of sample selection bias， either using knowledge width approach or text interpretation approach to measure the patent quality of China's firms， all those robust checks support the main findings in this paper， and then verify a certain degree of negative effect caused by China's provincial level government's patent subsidy policy on the quality of patent application， and also confirm the effective supervision function of the Chinese government as a “gatekeeper” of patent quality.
Keywords： Catch-up Strategy of Innovation; Government Patent Subsidy Policy; Quality of Patent; Inhibitory Effect; Neutral Effect

Summary： Some giants of classic economics, such as Marx, Weber, and Schumpeter, emphasized the connection between economy and society and the impact of social factors on economic development. More recent research has neglected these interactions as a result of the separation of economics and sociology into different fields of research. However, the recent revival of interdisciplinary studies in economics and sociology and the supply-side structural reforms that China is vigorously promoting have lead researchers to reconsider the links between social stratification and economic growth.
Classic theories of social stratification were shaped by Weber's social status (prestige) dimension, Durkheim's emphasis on the occupational community, and Parsons' argument (Parsons was one of the key figures in modern American sociology) that status or honor is the most important dimension of social stratification. In economics, the second wave of endogenous growth theory that began in the 1990s highlights the central role of innovation (R&D) in economic growth. Combining these economic growth and social stratification theories suggests that if an economy's occupational classes have distinct levels of innovation, then the class structure may affect the innovation efficiency of the entire society. When innovation becomes the engine of economic growth, there is no doubt that an occupational class structure like the one discussed above will have a non-negligible impact on growth.
According to Romer's product-variety model of endogenous growth, an economy consists of a final goods sector and a sector that produces intermediate goods, which can be viewed as the innovation sector. In this study, we introduce three stratified occupational classes into this economic model: the general workforce at the lower level, the innovation class (including entrepreneurs) at the middle level, and the public administration class at the upper level. The labor in the public administration class contributes to the productivity of the final product sector. There are differences in the utility of the social status and prestige of the different occupational classes in this model. Our analysis of this model reveals the mechanism through which social stratification influences economic growth. We test our hypotheses using province-level data from China; the estimation results offer some support for our theoretical analysis.
In summary, this study's findings are as follows. First, a social structure in which the status of the innovation class is lower than that of other occupational classes, for example the public administration class, reduces the innovativeness of the whole society, which is not conducive to long-term economic growth. Second, the extent of the adverse effect of occupational class differences also depends on the role of innovation in economic growth. Third, due to the different status and prestige of the innovation and public administration classes, the selection system implemented by the public administration sector is likely to attract more qualified labor to the public administration class. The selection system may either reinforce or inhibit the growth effect of social stratification, depending on whether the selection system strengthens the occupational status differences.
This study is only the first step in the exploration of the relationship between social structure and economic growth using economic research methods, and the study has several shortcomings. For example, in the theoretical analysis, the income and selection system of the public administration class is simplified, and in our econometric analysis we are not able to find a completely appropriate proxy for the differences in occupational classes. These limitations will be addressed in our future studies.
Keywords： Occupational Stratification; Economic Growth; Innovation

Summary： Overcapacity of specific industries， such as steel and coal， has been viewed as one of the most important and extensively discussed economic issues of China. The main feature of overcapacity is a massive amount of idling capacity， often considered to be a sub-optimal situation. The overcapacity of the steel industry is also closely related to low export price. Therefore， it turns out to be the most common fuse of trade disputes between China and developed economies， such as the U.S. and European Union. Since the late 1990s， the Chinese government has initiated five rounds of policies aiming to tackle with overcapacity. However， overcapacity keeps emerging periodically for some specific industries despite government's efforts. Since 2012， reducing overcapacity of particular industries has been listed as one of the primary economic goals of the Chinese government.
By definition， overcapacity is a low level of capacity utilization. Therefore， the key to understanding overcapacity is to precisely measure capacity utilization rate. However， current methods of measurement， such as data envelopment analysis and stochastic production frontiers， are far from satisfaction because of either the concepts they use to define overcapacity or their underlying assumptions. Based on the definition of Greenwood et al. (1988) and the conceptual framework of Ackerberg et al. (2015)， we develop a new method to measure capacity utilization rate. We define the capacity utilization rate as capital utilization intensity and incorporate flexible capacity utilization rate into the production function estimation framework. Our underlying assumption is that higher capacity utilization leads to higher depreciation rate of capital. Thus， we can use capital depreciation rate as a proxy variable to estimate capacity utilization rate and total productivity factor simultaneously. Our method requires weaker assumptions， offers a more precise and intuitive characterization of overcapacity， and is more amenable to various extensions.
Empirically， we apply our method to Chinese Industrial Enterprise Database. Collected and maintained by the National Bureau of Statistics， the database provides the most comprehensive micro-level information of Chinese industrial firms. It contains information on depreciation as well as inputs and outputs information for production function estimation. We estimate the capacity utilization rate and total factor productivity of Chinese industrial firms from 1998 to 2007 and from 2011 to 2013. Our results show that ignoring flexible capacity utilization would overestimate the elasticity of labor input on output and underestimate the elasticity of capital input. For most industries， this will lead to underestimation of firm-level productivity. Our results suggest that productivity of Chinese industrial firms has increased in the sample period.
Compared with estimates of previous methods of capacity utilization， our estimates are much closer to the estimates obtained via direct investigation and more consistent with the macroeconomic background. Chinese industrial firms experienced an overall rise in capacity utilization rate from 1998 to 2007 and a drop around 2012. We also explored the variations in capacity utilization across firms. Firms with higher productivity， lower capital intensity， higher export intensity and profit ratio are associated with higher capacity utilization rate. Foreign-owned firms have the highest capacity utilization while state-owned enterprises have the lowest. We also observe substantial regional variations in capacity utilization across provinces. The policy implication of the results is that to tackle with overcapacity efficiently， policymakers should take into account the heterogeneity of overcapacity along different dimensions.
The most important contribution of this paper lies in developing a new method of capacity utilization and utilization-adjusted total productivity factor. There are still a lot of controversies on the causes of and solutions to China's overcapacity problem. This paper tries to offer a benchmark framework to understand all these issues. We also provide some tentative and descriptive evidence to explore the variations in capacity utilization. Future research agenda concerning the mechanisms that give rise to overcapacity and the evaluation of related policies could be carried out based on the estimation strategy and results of this paper.
Keywords： Capacity Utilization Rate; Productivity; Overcapacity

Summary： Over the past 30 or more years, local governments in China have played an active role in promoting economic growth while accumulating a huge amount of debt. This study comprehensively assesses the vital role of local government guarantees, which are intended to create stability in economic growth but have led to expansion of local government debt. The focus of the analysis is the effect of local government guarantees on individuals, and it takes into account the characteristics of China(e.g., fiscal decentralization, regulation of household registration, and its tax-sharing system), extends the local equilibrium analysis to the general equilibrium analysis, switches from a dynamic model based on a single region to a multi-regional dynamic model, and organically combines game theory, comparative static analysis, and numerical simulation.
The results show that the impact of guarantees depends not only on the endogenous response to output growth but also on the competition between local governments. When the former dominates, the positive effect of local government guarantees on capital is enhanced, but its negative impact on production efficiency is also deepened, which leads to a decline in output growth and the expansion of local government debt. Under this condition, the economy may enter a negative feedback loop in which strengthening local government guarantees results in the production of more local government guarantees. When the latter dominates, it creates a positive feedback loop between local government guarantee sand economic growth in the region subordinate to the local government, but creates ups and downs in the whole economy and huge fluctuations in local government debt. Thus, the endogenous response of local government guarantees to output growth indicates that local government guarantees simultaneously positively affect capital and negatively affect interest rates; however, it also implies that the central government vertically guarantees the local governments.
Quantitatively, shocks produced by local government guarantees maintain the debt of local governments at around 30% over the long run; this is affected by the response to output growth, the mutual pegging mechanism of local government guarantees, financial decentralization, the control of household registration, and macro-policy instruments. The absence of guarantees may cause a concentrated release of the risk of local government debt, resulting in the risk premium on the debt reaching 50% in the short term, and over 10% in five years. The impact of the guarantee on local debt varies with the collocation of various instruments of macro policy. The introduction of any policy instrument will reduce the impact of the guarantee on debt in developed regions. In underdeveloped regions, the introduction of monetary policy can improve the impact of the guarantee on the debt of local government. Furthermore, local guarantees in underdeveloped regions have a stronger response to output growth, and this results in a bigger and faster expansion of local debt than in developed regions. In addition, local government guarantees not only promote the expansion of local government debt, they are also responsible for increases in asset prices, the leveraging process of the finance sector, the low efficiency of enterprises, and the cyclical shortage of money in the interbank market, implying that the debt trap mentioned in the introduction is just a token of the trap of government intervention.
The government should weaken its core focus on the stability of economic growth in the framework of macroeconomic regulation and control. The government should speed up fiscal reform and clarify the decision rights and financial rights of the central and local governments. It should make these rights institutionalized and transparent and gradually weaken the local guarantee for individuals by removing the expectation that local governments will be bailed out by the central government. The government should gradually establish macro-policies based on market-oriented tools with minimal administrative interventions.
Keywords： Government Guarantee; Maintaining Stable Growth; Government Debt; Local Competition; Dynamic Stochastic General Equilibrium Model

Summary： Since the Great Recession in 2008, the unemployment rate in many developed countries has risen dramatically, while labor force participation has fallen significantly. The data suggest that governments' stimulus packages to boost the economy have increased output, but unemployment rates remain high. This is called “jobless recovery.” In many emerging and developing countries such as China, governments have also implemented fiscal and monetary policies to stimulate the economy. This study uses post-2008 data from China to examine how fiscal policy affects employment.
In 2008, the Chinese central government implemented a fiscal stimulus package to fight the negative effects of the global financial crises on the domestic economy. There are two important features of this plan. First, the fiscal policy was mainly implemented by expanding the volume of infrastructure spending. Second, the policy was mainly implemented by state-owned enterprises (SOEs) (Wen & Wu, 2014). Many studies have shown that SOEs are in the upstream of industrial chains, whereas private-owned enterprises (POEs) are mainly located in downstream industries (Li et al., 2015). In addition, the labor markets of SOEs and POEs are partially segmented.
We first identify the fiscal policy shock by applying the SVAR model to Chinese quarterly data from 1998Q1 to 2014Q4. The results show that fiscal expansion has two opposite effects on employment. Specifically, the employment of SOEs is indeed boosted, whereas that of POEs declines. Motivated by this result, we then incorporate the relevant characteristics of Chinese firms and labor markets into a standard dynamic general equilibrium (DSGE) model to understand the propagation mechanisms through which fiscal policy affects employment. Three elements play important roles in the process of fiscal expansion: endowment structure of different firms, vertical industrial connections, and elasticity of labor supply. In particular, the capacity of a firm to absorb employment is limited if it is capital-intensive. As fiscal expansion increases the demand for intermediate goods and pulls up their price, under strong vertical industrial connections a sharp rise in the cost of goods to downstream enterprises will inhibit employment in these industries. Furthermore, the smaller the elasticity of the labor supply, the stronger the auto-stabilization effect of the labor market. Finally, we identify the key parameters of the model using Bayesian estimation. The results demonstrate that SOEs are more capital-intensive than POEs and that the industrial connection between the two sectors is significant. The impulse response functions based on Bayesian estimation are consistent with the results obtained by the SVAR analysis.
This study makes two contributions. First, we disaggregate the data and discuss the different effects of fiscal expansion on employment at the sector level. Most previous studies discuss only the aggregate effect of fiscal policy on employment. Second, we incorporate multi-dimensional characteristics of Chinese firms and labor markets into the DSGE framework and identify a new mechanism through which fiscal policy affects the structure of employment. Specifically, vertical industrial connections are explicitly incorporated into the model. Some recent studies indicate that the vertical industrial structure is a key feature of the Chinese economy. Li et al. (2015) discuss “state capitalism” and vertical industrial structure and examine how an exogenous shock affects the downstream industries directly. Our study considers how fiscal policy initially affects the upstream industries. The propagation mechanisms and predictions of the two studies are totally different. Specifically, if a positive demand shock hits the downstream industry, the expansion of production in this sector will push up the demand for goods produced by the upstream sector, so that the employment rates of both sectors move in the same direction. However, if the positive demand shock affects the upstream industry, the rise in the price of intermediate goods will depress the downstream sector, and the employment rates of the two sectors diverge. The fact that the simulations of the model coincide perfectly with the empirical evidence implies that the model proposed in this study is a useful framework for evaluating the effects of fiscal policy.
Keywords： Fiscal Policy; Heterogeneous Firms; Vertical Industrial Connection; Employment

Summary： Private manufacturing enterprises are regarded as vigorous and innovative, but the growth of private investments in manufacturing industries in China has undergone a remarkable slowdown in recent years. Existing studies have suggested that either labor costs or macro-tax burdens are restricting the growth of private manufacturing enterprises. This study identifies which factor, labor cost or macro-tax burden, restricts the growth of private manufacturing enterprises.
Labor costs in China have risen significantly over the past decade. Generally, the effect of labor costs on enterprise performance depends on the substitution relationship between labor input and technological upgrades, which is associated with the allocation of enterprise resources. To determine whether the cost of labor is the key restriction on the growth of private enterprises, we need to accurately measure and compare the cumulative effect of these different inputs.
In addition to micro factors, macro and industry factors also have vital impacts on enterprise performance. Macro factors, economic policy, and tax burden affect all enterprises, whereas industry factors are primarily reflected in the life cycles of particular industries.
This study uses a panel data model of enterprise performance with multi-level factors, including macro factors, industry factors, and micro factors, to measure the marginal contribution of labor costs and technological upgrades to manufacturing enterprises under different operating conditions. It demonstrate the critical and dynamic effects of macro factors on the performance of manufacturing enterprises.
The empirical analysis is based on the annual data of 305 companies listed on the Small and Medium Enterprise Board in China during the 2008 to 2015 period. By using an iterative algorithm of the factor instrument variable (FIV) estimator and principal component analysis (PCA), the panel data model with multi-level factors is estimated consistently, and the chief macro factor that restricts Chinese manufacturing enterprises is identified.
The estimation results show that for enterprises under poor operating conditions the efficiency of labor costs is significantly lower than that of equipment and technological innovation inputs. Under outstanding operational conditions, the efficiency of labor costs is higher than that of technological upgrades. Moreover, the better the state of operations, the more sensitive the enterprise is to macro factors. Therefore, macro factors rather than the cost of labor place the strongest restrictions on the development of high quality enterprises.
We further find that the macro factor restricting private manufacturing enterprises is characterized by an L-shaped trend, which is highly consistent with the dynamic trend of the macro-tax burden with a folding point in 2010. The recent fluctuations are generally consistent with the actual tax burden on enterprises. In other words, the macro factors restricting the growth of private manufacturing enterprises are chiefly tax burdens.
The primary conclusion is that increasing labor costs is the major obstacle to the development of small and medium private manufacturing enterprises with poor operating conditions. However, for enterprises with good operating conditions, the operating pressure mainly comes from the tax burden, rather than the cost of labor. That is to say, the growth of successful small and medium-sized private manufacturing enterprises is based on technological upgrades, and the way to strengthen and expand existing competitive enterprises is to focus on tax cuts and tax burden reduction.
The contributions of this study are as follows. First, we construct a model with multi-level factors to control and measure both the macro and industry factors that restrict the development of private enterprises. Second, we identify macro-tax burden as the macro factor that imposes the greatest restrictions on the development of private manufacturing enterprises. Finally, we identify the heterogeneity of resource allocation efficiency and the sensitivity to tax burden of enterprises under different operating conditions.
Keywords： Labor Cost; Macro-tax Burden; Private Manufacturing Enterprise; Enterprise Performance; Multi-level Factors

Summary： Imperfect tax institutions usually empower tax enforcement officers with discretionary power. Under conditions of asymmetric information or a lack of supervision, tax enforcement officers who pursue their own interests will hide themselves behind the normal tax system while colluding with enterprises. In exchange for bribes, these tax enforcement officers will turn a blind eye to a companies' tax evasion or even fraud. A large number of studies have explored the factors affecting corporate tax evasion from different perspectives, such as statutory tax rate, market competition pressure, macroscopic financial systems, and internal governance environment. However, due to the lack of an effective measure of collusion, and the fact that incentives for tax enforcement officers to collude are not embedded within the existing framework, there is little research on the effect of collusion between tax supervisors and taxpayers on tax evasion.
Using China's tax institutional background and the micro-data of listed companies, this study attempts to examine the impact of collusion on corporate tax evasion. As in other developing countries, whether they are in early or late stages of development, China's tax collection and management system is characterized by the large discretionary power of tax administrators over the determination of companies' actual tax burden, particularly for corporate income tax. For example, due to their role in the deduction of corporate income tax and the identification of asset losses, tax collectors' individual judgments can directly determine the level of corporate tax burden. As a result, collusion is common in tax collection, which has been highlighted by the high incidence of corruption cases in China's tax collection system. This study uses the business entertainment expenditures at the firm level as a measure of collusion, and uses the book-tax income difference to measure tax evasion. In China's accounting standards, business entertainment expenses include a wide range of items, such as tourism, travel, catering, and purchase of gifts for customers, which are normal production operations and marketing public relations expenses. But in practice, due to the difficulty in identifying legitimate and illegitimate expenses, business entertainment expenses have also been widely used by enterprises to hide their bribery of government officials and expenses to maintain political and commercial relations.
This study demonstrates a strict positive relationship between business entertainment expenses and corporate tax evasion. We find that the higher the proportion of corporate entertainment expenses, the greater the tax evasion in corporate income, especially after excluding the tax avoidance channel for entertainment expenses based on pretax deduction. Further, the above relationships vary with the regional corruption level and the strength of corporate political connections. In regions with high levels of corruption, more tax is evaded for similar amounts of business entertainment expenses. However, enterprises' political connections substitute for the incentive to collude, thereby weakening the relationship between business entertainment expenses and tax evasion. Finally, the increase in collusion costs also weakens the incentives of both parties, which explains why the central Party leadership's eight-point decision on improving Party and government conduct since December 2012 weakened the relationship between business entertainment expenses and corporate tax evasion. This anti-corruption campaign increased the cost of collusion.
This research has important policy implications for strengthening tax administration and improving the country's fiscal capacity. Collusion is the result of the lack of institutional supply. Therefore, strengthening the construction of the tax collection system, especially reducing the discretion of the tax administrator, is critical for reducing tax evasion. In addition, strengthen the macro anti-corruption efforts and the establishment of a third-party income reporting system can increase the cost of collusion.
Keywords： Collusion; Rent-seeking; Entertainment Cost; Tax Evasion

Summary： Accelerating the implementation of its free trade agreement strategy and gradually building a high quality free trade agreement network are important measures of China's opening-up policy in its thirteenth five-year plan period. The construction of mega-regional trade agreements (mega-RTAs) is the key aim of this strategy. As the world's second-largest economy and the largest goods trade country, China's mega-regional trade agreements will significantly affect the world economy. However, quantitative analyses and comparisons of the economic effects of China's participation in a mega-RTA are still scarce. Most studies have examined individual trade agreements. Such studies are not only insufficient, they also ignore the newest developments in modeling trade agreement negotiations, which, for example emphasize new rules and institutional openings. This study conducts a comprehensive quantitative assessment of the economic impact of China's existing mega-RTAs and their economic effects. The results provide theoretical guidance and policy support for the development of China's free trade agreement strategy.
This study uses a global general equilibrium model system that includes 29 countries and regions to evaluate the economic impact of China's participation in mega-RTAs. The production structure in the model is the constant elasticity of substitution (CES) production function, and the demand structure is the nested CES consumption function. Trade costs are introduced into the trade structure and are decomposed into import tariff barriers and non-tariff barriers. Import tariffs barriers bring tax revenues, but non-tariff barriers only bring sunk costs. The model also constructs an endogenous trade imbalance structure by introducing “inside money”. Using global and national economic data from 2013 as a benchmark, the study uses calibration and estimation methods to determine model parameters, and then constructs a numerical general equilibrium model structure to quantify the economic impact of China's mega-RTA negotiations. Furthermore, in determining the parameters of the elasticity, we innovatively assume the elasticities value to be a uniform distribution, and then determine the linear or nonlinear distribution effects.
This study numerically simulates the potential effects of five mega-RTAs that China is involved in, including the Regional Comprehensive Economic Partnership (RCEP), the China-Japan-South Korea Free Trade Agreement (CJK), the China-ASEAN Free Trade Area Upgrade (CASEAN), the China-Gulf Cooperation Council (CGCC) Free Trade Agreement, and the Free Trade Area of the Asia-Pacific. Simulation results reveal the following. (1) These trade deals will improve China's welfare, production, employment, and trade; comparatively the trade effects are the strongest, production and employment effects are moderate, and the welfare effects are the weakest. (2) All of the other member countries will gain from the trade deal, and the countries with small economic scales and high export dependence will gain the most. China's comparative gains and contributions determine its leading role in the agreement negotiation. (3) Comparatively, FTAAP and RCEP will benefit China the most, China-Japan-Korea FTA will benefit China the second most, and China-ASEAN FTA upgrade and China-GCC FTA will benefit China the least.
This study makes three contributions. The first is that both tariff and non-tariff barriers are introduced in the theoretical model, which helps to quantify the impact of the new rules that are emphasized in the current regional trade agreements. The second is the assumption of a series of different consumption and production elasticity in the simulation results, which allow the impact to be presented in the form of a statistical distribution. The third is a comprehensive quantitative analysis and comparison of the impact of these mega-RTAs on China. The results have important policy implications for China's policy options, priorities, and negotiation strategies and for accelerating the implementation of the free trade agreement strategy.
Keywords： Mega-regional Trade Agreement; Numerical General Equilibrium; Welfare; Trade

Summary： Studies have shown that the behaviors, financial risks, and capital flows of China's intermediaries were connected to the fluctuation in A-share prices in 2015. This study examines the international risk-taking channel of capital flow in an open economy DSGE framework that considers endogenous financial risk to macroscopically explain the history of A-shares in 2015. This theoretical analysis will help to prevent and control future financial risks.
Previous studies, specifically those of banking risk-taking theories, show that intermediaries' lending and risk choices become aggressive at the onset of interest rate declines, pushing up the aggregate financial risks and potentially triggering a crisis (Borio & Zhu, 2008; Jiménez et al., 2014; Dell' Ariccia et al., 2014). The traditional theories, however, are handicapped by the assumption of a closed economy, so that the influences of international capital flow on financial behaviors cannot be properly assessed. This has led to many current studies of the risk-taking channel in open economies. Building on Miranda-Agrippino & Rey (2015), Bruno & Shin (2015) examine the relationship between intermediaries' behaviors, financial risks, and capital flows; their results suggest that the level of banking leverage and financial risks can be stimulated by the appreciation expectation. This has been called the “international risk-taking channel.” Unlike traditional theories, Bruno & Shin's theory (2015) underlines the fact that intermediaries' risk sensitiveness can be changed by the flow of overseas capital; however, there is no theoretical analysis of this effect. One of the contributions of this study is to create a theoretical framework for the study of the “international risk-taking channel,” along with the characterization of the aforementioned macroeconomic phenomenon.
Extending Gertler & Karadi (2011), we develop a medium-sized DSGE model to facilitate theoretical analysis and dynamic simulations. Three board conclusions emerge. First, the appreciation expectation, by increasing capital inflow, boosts asset prices and lowers interest rates, which further pushes up the non-financial sector's lending rate and intermediaries' spread and leverage level. Second, given an assets shock, a marginal increase of assets risk lowers the fund's moral hazard and its risk choice, along with banking deleveraging and spread turbulence; hence, asset prices drop and capital outflow increases. Third, a change in marginal risk is dominant in the international risk-taking channel given the high level of endogenous financial risks; the appreciation expectation induces capital outflow, thus aggravating financial crunches, only when the financial risks exceed some certain level. Accordingly, the explanation of the 2015 A-shares fluctuation is straightforward. From September 2015 to the middle of November 2015, due to the improvement in intermediate pricing on the RMB exchange rate, capital outflow dominated due to the persistence of financial deleveraging and the potential stock market risks, notwithstanding the appreciation of the RMB against the US dollar. Similarly, in the first quarter of 2016, overseas capital outflow dominated due to the renewed stock market fluctuations in January; however, the RMB exchange rate appreciated in a narrow range.
The implications of these conclusions for the stabilization of the international risk-taking channel effect can be summarized as follows. (1) Regulators should quantify financial risks by improving risks management and assessment with a rigorous audit procedure, under which the intermediaries' behavior can be further guided. (2) A good financial stabilization policy not only eliminates volatility, it also guarantees financial institutions' ability to provide better services to the real economy. Therefore, regulators should restrain financial over-innovation by directing capital to the priorities and weaknesses of the real economy, promoting China's economic structure reform.
Keywords： Capital Flow; Endogenous Financial Risks; International Risk-taking Channel; Stock Market Fluctuation

Summary： Inflation expectations play a key role in economic theory and practice. To improve the accuracy of inflation forecasts, economic agents react to relevant information and incorporate these data into their forecasts. The information content of accounting earnings have been well studied at the firm level, and information contained in earnings at the aggregate level in capital markets have recently been studied by Kothari et al. (2006), who document a puzzling negative relation between aggregate earnings growth and market returns and provide evidence that aggregate earnings contain information about inflation. Subsequent studies, such as Shivakumar (2007), Cready & Gurun (2010), Konchitchki & Patatoukas (2014), Patatoukas (2014), and Gallo et al. (2016), have investigated the macroeconomic information content of aggregate earnings. Recently, Kothari et al. (2013) and Shivakumar & Urcan (2017) have used analysts' earnings forecasts to calculate aggregate earnings' surprises and have found evidence that PPI inflation information is conveyed in aggregate earnings surprises and that this information is not incorporated in professionals' inflation forecasts.
Managers also make and release earnings forecasts based on their insiders' view of the firm. Management earnings forecasts are also referred to as earnings guidance. With more and more management earnings forecasts released every quarter, they are becoming increasingly representative and may be informative not only at the firm level but also at the aggregate level of macroeconomic variables. This study investigates the inflation content of aggregate earnings surprises measured by management earnings forecasts.
The sample consists of 57940 management earnings forecasts released between 2004 Q1 and 2016 Q4. We calculate a quarterly firm-level earnings surprise as the realized earnings minus the forecast earnings, divided by the absolute value of the forecast earnings. Five measurements of aggregate earnings surprises are then derived by taking weighted averages of firm-level surprises based on five weights: equal weight, market value, market value circulated, average market value, and market value circulated in the corresponding financial period. The Quarterly Consumer Price Index (CPI) is used to measure inflation. Granger causality tests conducted on VAR models significantly reject the null hypothesis that “aggregate earnings surprises do not Granger cause CPI inflation,” implying that aggregate earnings surprises convey significant future CPI inflation news.
Households' inflation expectations are derived from the quarterly survey conducted by The People's Bank of China. We use the method of Carlson & Parkin (1975) to estimate the quantitative expected inflation rate from the qualitative survey data. The inflation forecast error is calculated by subtracting the expected CPI inflation from the actual CPI. Regressions of the inflation forecast error on the aggregate earnings surprise show that aggregate earnings surprises significantly predict forecast error for CPI. We also find that the CPI inflation information conveyed in aggregate earnings surprises is not incorporated into households' inflation forecasts. Households do not react to aggregate earnings surprises when forming their inflation expectation. The empirical results are robust to alternative measurements of aggregate earnings surprises and inflation expectations, and to industry subsamples.
The main contributions of this study are as follows. This study provides direct evidence that aggregate surpluses can unexpectedly transmit the future CPI inflation information contained in management surplus forecasts, which reveals that the inflationary expectations of the public do not fully consider the accumulated company surplus information. In summary, this study contributes to the literature by providing evidence of CPI information content in aggregate earnings surprises and by shedding new light on the way earnings information affects household inflation expectations.
Keywords： Inflation Expectation; Earnings Surprise; Earnings Forecast; Management Earnings Forecast

Summary： The reform of China's mixed ownership enterprises is on the horns of a dilemma: on the one hand, the state-owned shareholders still occupy the dominant position of control rights, which weakens the ability of heterogeneous shareholders to participate in corporate business; on the other hand, the one-share-one-vote rule results in corporate control subject to ownership and thus, the reform of mixed ownership enterprises is difficult to go deeply. Under this circumstance, how to arrange corporate control rights in order to make mixed ownership reform deepen and improve corporate performance?
There are two approaches about arrangements of control rights: one is the logic of equivalence, which argues that the arrangement of control rights should be consistent with equity structure, abiding by the role of one-share-one-vote. The other is the logic of non-equivalence, which argues that the arrangement of control rights can be separated from equity structure and need not to abide by the rule of one-share-one-vote. Most scholars, e.g., Grossman & Hart (1986), Hart & Moore (1990), Harris & Raviv (1989), follow the first approach. Some other scholars, e.g., Choi (2015), based on the practice of non-equivalent allocation between equity and control, rethink the logic of equivalence and put forward the idea of non-equivalent allocation between equity and control. But, for a company with both state-owned shares and non-state-owned shares, how to arrange control rights can it improve corporate performance? In other words, is it essential for mixed ownership enterprises to follow the role of one-share-one-vote? To solve this problem, we should demonstrate with sufficient empirical data that how and in what degree the allocation of equity and control affects corporate performance.
By using the data of corporate performance, equity structure and board structure in all listed companies under SASAC, State Council, and by controlling the industry classification, this paper investigates the correlation of equity structure, board structure and firm performance. In order to avoid the endogenous issue raised by Demsetz & Lehn (1985) as well as Davidson & Rowe (2004), we use the data that one year lag of equity structure and board structure.
The study finds that: (a) reducing the proportion of the first five largest state-owned shares is conducive to improving firm performance, but increasing the proportion of the first five largest non-state-owned shares too many is not conducive to improving firm performance; (b) increasing the proportion of state-owned directors is conducive to improving firm performance, but reducing the proportion of state-owned directors too many is not conducive to improving firm performance. And compared with equity structure, the board structure has a greater effect on firm performance. Based on the above, the paper explores the best range of the proportion of state-owned and non-state-owned shares, and proposes approaches and suggestions about the reform of mixed-ownership enterprise through transfer or sharing of control rights, under the premise of unchanging the controlling status of state-owned shares.
The main contributions of this paper are as follows: First, it scrupulously founded true attributes of shareholders and directors by judging the actual controller of the company; second, it examined the correlation between equity structure, board structure and firm performance, tested the different effects of equity and control on firm performance, and demonstrated the logical rationality of non-equivalent allocation between equity and control; third, it preliminarily explored the optimal interval proportion of the top five state-owned shareholders and non-state-owned shareholders, and provided a quantitative basis for deepening mixed ownership enterprises reform; last, it put forward some countermeasures and suggestions for the reform of mixed ownership enterprises.
Keywords： Mixed Ownership; SOEs Reform; Corporate Governance; Firm Performance

Summary： Studies of marriage economics have found that marriage and family characteristics affect the family's economic development. Building on research in marriage economics, recent studies in finance have begun to explore the relationship between marriage or family issues and corporate financial behavior. Studies have found that the marital status of company executives affects a company's risk preference (Nicolosi & Yore, 2015; Roussanov and Savor, 2017). Executive teams with couples make longer-term investment decisions for companies than teams without couples (Amore et al., 2017). When the two largest shareholders in a small family firm are husband and wife, the firm will make fewer investments and adopt more conservative financial policies (Belenzon et al., 2017).
In a family firm, the entrepreneur's family members may be involved in the company and may influence the company's behavior. In particular, a husband and wife team has a strong influence on a company's behavior (Chua et al., 1999; Poza & Messer, 2001). However, the degree of participation in the company varies across family firms (Gundry & Welsch, 1994). There is also often a significant difference in the risk preferences of a husband and wife. Therefore, the participation of a husband and wife team in a family firm may affect risk decision-making. This study integrates the two independent research perspectives of marriage and gender which previous studies have shown can influence corporate financial behavior. The sample consists of Shanghai-Shenzhen A-share listed family firms from the 2007 to 2015 period. The study examines the effect of joint shareholding by couples in listed family firms on the companies' risk taking during the matrimonial period. The study has three main findings.
First, compared to family firms that are individually held by a husband or wife, listed family firms that are jointly held by a couple have a significantly lower level of risk taking, that is, the companies' have lower debt ratios and higher cash-holdings. These results are robust to using instrumental variables that resolve possible endogeneity problems and alternate metrics.
Second, this study finds that in a listed family firm, if the actual controller's wife is a shareholder, this significantly increases the probability of her having a position in the firm, indicating that participation in management is an important path through which the actual controller's wife influences the company's risk preference. Joint ownership of shares between a husband and wife significantly increases the probability of the company hiring female executives, which also reduces the company's risk-taking level to some extent. Furthermore, husbands who share company shares with their wives have fewer masculine tendencies. Their more respectful attitude towards women and their relatively mild personality traits may also make the company's risk decisions more conservative and cautious.
Finally, a further study has found that if a wife has more relatives in the company than the husband, the wife has more say in corporate decision making. If the actual controller's wife has higher academic qualifications than her husband, this significantly strengthens her influence on the company's decision-making. In addition, the higher the divorce rate in the region, the worse the marriage and family atmosphere may be. This weakens the level of risk taking in listed family firms where the couple jointly holds shares.
The main contributions of this study are as follows. Building on previous studies of marriage economics, this study explores the influence of husbands' and wives' different risk preferences on joint decision-making, and extends the research on family financial decision making to listed family companies controlled by couples. It broadens the perspective of the entrepreneurial decision-making model. This study is important given women's increasing participation in family firms' operations in China, and examines how the actual controller's wife's attitude to risk affects the decision making of a listed family firm. The findings enrich and supplement previous research on family firms.
Keywords： Marriage; Gender; Couple's Joint Holdings; Corporate Risk-taking