Tax-for-fee Reform as Exogenous Shocks: The Slowdown of Rural Migration in Chinese Villages, 1998-2002

By Bingdao Zheng Division of Social Science, HKUST

Abstract: Behind the heated discussion about the labor shortages in urban China in recent years, the rationale of the slowdown of rural migration remains puzzling. By analyzing a dataset constructed from the Chinese Household Income Project conducted in 2002, we identified the policy intervention, specifically, tax-for-fee reform as the explanation. Our evidences are consistent in two analytical units. In community level, we found that in the villages which have conducted the reform, the financial burden of farmers were significantly reduced, which in turn decreased the village migration rate. In household level, the rural families which have experienced tax-for-fee reform benefited from the decrease of family financial burden, and therefore allocate less household labor to migrant non-farm work.