Research Interests
Public Economics and Macroeconomics
Publications
Kakwani, N., Wang, X., Xue, N. and Zhan, P. (2022). Growth and Common Prosperity in China. China & World Economy, 30(1): 28-57.
Villamil, A., Wang, X. and Xue, N. (2021). A Political Foundation of Public Investment and Welfare Spending. Journal of Public Economic Theory, 23(4), 660-690.
Wang, X., Weaver, N. and Xue, N. (2019), Challenges for the Chinese economy in the new era of development (Editorial). Journal of Chinese Economic and Business Studies, 17(1): 1-7.
Working Papers
Higher Taxation for Fairer Redistribution? A Political Economy Model with Occupational Choice (with Anne P. Villamil and Xiaobing Wang)
Abstract: We explain a puzzling contradiction: theory often predicts that higher inequality leads to higher taxation, yet empirical results are mixed. In our model agents with heterogeneous wealth vote for the level of tax and make occupational choices to be workers or entrepreneurs. The tax chosen by the median voter depends on the elasticity of investment to the net-of-tax rate and the elasticity of labor supply to the net-of-tax rate. We show that whether higher inequality induces the median voter to choose a higher or lower tax depends on general equilibrium effects. Tax policy affects the economy through two channels: 1) Equality and efficiency trade-off: a higher tax rate discourages entrepreneurial investment and thus affects the tax revenue collected. 2) Trickle-down effect: the tax indirectly affects workers' income by reducing the equilibrium wage, due to reduced labor demand from fewer entrepreneurs. The median voter optimizes total income, wages plus transfers. Simulations illustrate the effect on the tax rate.
Simple Models on Decision Making and Search Costs (with Xiaobing Wang)
Abstract: This paper develops four simple models in addressing four aspects of decision making. The .first model addresses a puzzle that a larger choice set and having more information should in theory enable people to make better choices but empirical evidence and psychological experiments show that people often prefer a strictly smaller choice set. It did so by considering search costs and argues that although more information may increase income, as it also increases search costs, it may reduce income. The second model shows that heuristics sometimes bring better results than deep thinking when agents are faced with very complex situations, corresponding to recent evidences from psychology. The third model studies the effect of individual's productivity on their decision-making. People are likely to spend more time processing information if they are more effective in information processing. The difference in productivity will also affect the decision rules. The fourth model compares the effect of two different ways in enhancing information processing ability and their impacts on decision making. It shows that an agent should focus on working she is better at enhancing ability in learning-by-doing than through training. the Political Foundations of China's Growth and Welfare.
Work in Progress
Deep Habits in Public Spending
Abstract: This paper develops a dynamic two-sector model with reference-dependent preference. By introducing habit persistence for specific goods, also known as deep habits, into the consumption of both private goods and public goods, we provide an explanation to the growth in public spending and different growth rates for different public goods. The results show that the steady-state provision level of public goods is positively related to its habit strength when there is a larger intertemporal elasticity of substitution. The stronger the habit strength is, the higher the steady-state provision level of public good is. The growth rate of public goods also depends on whether it is more utility-enhancing.
The Administrative Cost of Taxation (with Nanak Kakwani and Xiaobing Wang)
Abstract: This paper provides a framework for a better understanding of the efficiency of taxation and its implications to social return of the taxation in theory and in practice, taking into consideration of the administrative cost of taxation. Our model shows that it is not at all optimal to pursue perfect targeting or zero tax evasion policies when the administrative cost of taxation is present. By calculating the social rate of return by various of taxation policies using the tax data including the composition of direct and indirect taxation from the United Kingdom, we show that there is a trade-off between strict tax collection and social welfare. We argue that the effectiveness of taxation and social assistance programmes can be increased without perfect enforcement.
Who Votes for Universal Basic Income?