Common Prosperity:Re-examining the Trickle-down Effect in China
Recent research has found that the fruits of economic growth in most countries do not trickle down from high-income to low-income groups through market mechanisms,that is,the"trickle-down effect"is not significant.Does China have a"trickle-down effect"to realize"get-rich-first group driving others to get rich later"?Based on China's practical experience since the reform and opening-up,this paper proposes two mechanisms for realizing this goal.Firstly,in addition to directly targeting individual subsidies,central financial transfers also provide low-income groups with basic development rights such as education and healthcare through the promotion of"equalization of public services",which simultaneously ensures the realization of"giving a man a fish"and"teaching a man to fish".Secondly,state-owned enterprises(SOEs)are dominant in the electricity,rail transportation,and communications network infrastructure sectors,and play a"quasi-government"role in providing services to remote areas and low-income groups in the form of"universal service",which empowers them to access infrastructure as a fundamental right to development.This paper uses the China Family Panel Studies(CFPS)database to test the roles of the two mechanisms of central financial transfers and SOEs in realizing the trickle-down effect in China since 2012.This study firstly summarizes the characteristics of typical registered poor households,then explains how the central financial transfers and SOEs with"pro-poor"characteristics have an impact on driving poor households out of poverty,and finally establishes a regression model to carry out empirical analyses.The results of empirical research show that the get-rich-first group can indeed drive the low-income group to get rich,that is,the income growth of the high-income group has a significant contribution to the poverty alleviation of rural households.The mechanism tests show that the increase in the income of urban residents significantly increases the central financial transfers and SOEs'construction of electric power,railroad transportation,and communication network infrastructure,which then benefits low-income groups and thus reduces the probability of poverty.The marginal contributions of this paper are mainly reflected in the following aspects.Firstly,this paper examines the impact of the income growth of high-income earners on the probability of poverty of low-income disadvantaged groups in rural areas of China from the perspective of micro-household data,to re-test the"trickle-down effect",and effectively enrich the discussion on the"trickle-down effect".Secondly,this paper delves into the decisive role of the fiscal system and SOEs in the access of low-income vulnerable groups to the right to development.This paper finds that the pro-poor fiscal transfers and the services provided by SOEs for infrastructure such as electricity,transportation,and communica-tions not only meet the needs of high-income groups but also ensure the right to development of low-income groups,thus helping them to escape from poverty.Thirdly,the paper provides a detailed analysis of the dynamic process of"get-rich-first group driving others to get rich later",showing how to achieve common prosperity through financial trans-fers and public services provided by SOEs,especially how the government can utilize the tax revenues of high-income earners to support the low-income group and bring them to prosperity without blindly expanding its debt.
Common ProsperityTrickle-down EffectPoverty AlleviationCentral Financial TransfersStated-owned Enterprise
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