Research

Policy Credibility and Expectation-Driven Housing Demand: Evidence from China’s Housing Purchase Restrictions with Jiakai Zhang (Paper)

This paper quantifies expectation-driven demand in China using a quasi-experiment based on the housing purchase restriction (HPR) policy. We adopt a spatial difference-in-differences approach to identify both the direct and spillover effects of the policy. The results show that the HPR lowered housing prices by about 9% in treated cities and 5.33% in neighboring cities, while having no significant effects on transactions, completed areas, rents, fiscal revenues, or other local fundamentals. This pattern suggests that the policy curbed anticipatory behavior by dampening expectation-driven demand, which constitutes a substantial share of total demand. Furthermore, we develop a simple dynamic framework in which downward rigidity in expected resale prices generates a pecuniary externality, clarifying why the credibility of the first round of the HPR policy was pivotal in curbing the expectation-driven component of demand.

How Does Land Use Policy Affect Local Labor Market and Housing Market? with Jiakai Zhang (Paper)

Amid China’s rapid urbanization, local governments face the challenge of allocating scarce land to balance development and housing affordability. Using sensitivity instruments that interact city responsiveness with provincial land policies, we identify causal effects of land-use allocation. A 10-percentage-point increase in productive land share reduces unemployment by 0.66 percentage points but raises housing prices by 4.63 percent, worsening affordability. To interpret mechanisms and welfare impacts, we develop a spatial equilibrium model with labor market frictions, housing development with land constraints, and local public finance. Calibrated to the Chinese urban system, the model shows that such a shift lowers average welfare by 0.46 percent, as higher housing costs outweigh wage and employment gains. Counterfactual analyses under three governance regimes reveal that political distortions dominate spatial externalities in generating inefficiency. Inverting the model uncovers heterogeneous political weights across three city types, highlighting the trade-off between growth and affordability and pointing to reforms that realign local incentives with welfare.

Shifting Employment and Investment Structures Towards Environmental Sustainability with Juin-Jen Chang, Jhy-Yuan Shieh, Jhy-Hwa Chen, and Jiakai Zhang (paper)

This paper investigates, both empirically and theoretically, the impact of China’s 2018 environmental protection tax (EPT) reform. Empirical results indicate that China's EPT reform triggered substantial employment reallocation from heavy-polluting to non-heavy-polluting industries, resulting in an aggregate employment increase of approximately 5.92%. The reform had an asymmetric impact on green investment, with non-heavy-polluting industries experiencing a remarkable 113% increase in their green investment rate. We develop a general equilibrium model that accounts for about 65% to 90% of the observed changes in employment shares, market shares, and green investment rates between non-heavy-polluting and heavy-polluting sectors. The substitutability of labor, energy, and consumption plays a pivotal role in explaining the empirical findings. An elasticity of labor substitution greater than one is necessary to achieve an increase in aggregate employment.

Markups, Labor Share, and Wage Dispersion Job Market Paper

Market powers can affect firm behaviors in labor market. This paper argues that the decrease in the overall wage since 2000 is caused by both rising product markup and falling labor markdown. The significant decrease in wages among lower percentiles has led to an increase in wage dispersion and a decrease in the aggregate labor share. I build a heterogeneous firm model to demonstrate that the decline in wages, especially among the lower percentiles, can be attributed mainly to the monopsony power of firms, which explains the rise in wage inequality and the fall in labor share.