Research

Working Papers

A Model-Based Estimate of China’s Effective Tax Rates [pdf]

This paper develops a general equilibrium model to estimate China’s effective tax rates on consumption, labor, and capital from 2001 to 2017. Unlike previous studies that apply top-down approaches based on simplified tax classifications, this paper adopts a bottom-up strategy that explicitly models China’s complex tax system, incorporating 25 distinct tax instruments. By tracing tax incidence through the economy and reclassifying tax revenues according to their actual economic burden, the model provides internally consistent and theoretically grounded estimates of effective tax rates.

Interest Rate Distortion and Welfare Dynamics: A Case Study of China [pdf]

In this study, I explore the welfare implications of two hypothetical financial reforms that reduce the interest rate distortion between the public and private sectors of China. A two-sector heterogeneous-agent model is developed to capture two sources of interest rate distortion: financial friction and implicit government guarantee. Numerical results suggest that eliminating either the financial friction or the implicit government guarantee alleviates interest rate distortions but generates distinct welfare effects—removing financial friction raises both output and consumption, whereas eliminating the implicit government guarantee reduces them. This divergence is mainly due to the differing responses in aggregate capital. Furthermore, the two reforms affect households differently: reducing financial friction improves welfare for all households, while withdrawing the implicit government guarantee benefits low-wealth households but hurts wealthier ones.

The Role of Firm Financial Frictions in the Transmission of Foreign Shocks (with Ida Kristine Haavi) [pdf]

This paper analyzes how firm‐level financial frictions shape the transmission of foreign borrowing shocks in a small open economy. Embedding dividend non‐negativity and collateral constraints into a heterogeneous‐firm New‐Keynesian model calibrated to pre‐crisis Hungary, we simulate a small “sudden‐stop” shock—an unanticipated 1% drop in foreign capital inflow followed by a gradual recovery. We show that high prevalence of collateral‐constrained firms mutes aggregate investment volatility (a 0.03% fall versus 0.45% in a representative‐firm benchmark) but amplifies consumption and output swings, since muted investment cuts leave fewer domestic resources for smoothing consumption. These dynamics arise from a novel composition mechanism: constrained firms raise investment when collateral values rebound, offsetting others and reshaping aggregate responses.