The Effect of the Housing Provident Fund on Income Redistribution: The Case of China

ABSTRACT

Long-term collective saving schemes are widely adopted in many emerging economies to support residents’ housing consumption. This article evaluates the effect of the Housing Provident Fund (HPF), one of the most prominent housing policies in China, on income redistribution beyond its housing support role. Based on micro survey data, our results suggest that the current HPF policy design widens the income gap between HPF participants and nonparticipants and aggravates income inequality across the whole population; further simulation results suggest that expanding HPF coverage has an alleviating effect. However, in the event of housing purchases through HPF loans, lower income participants can leverage more benefits, and the floor-and-ceiling policy design decreases the marginal benefits for higher income participants, resulting in mitigated income inequality among HPF participants. One notable risk of the HPF’s widening of the income gap among participants is the unavailability of HPF loans for low-income participants. Our findings indicate that optimizing the HPF system might be a better option than its abolishment, from the perspective of its income redistribution function. We also provide some valuable recommendations for gradual future reform of the HPF.

KEYWORDS:

• Housing Provident Fund
• income inequality
• redistribution
• China

Disclosure Statement

The authors declare no conflict of interest.

Notes

1. The after-tax income does not include the money subsidized by the employers.

2. Because the house is owned by the household, the Gini coefficient is calculated for households. Therefore, the variable deposit here contains all participants’ deposit funds. Because the HPF program requires monthly deposits, and the households pay off their loans monthly, the subsequent calculations are based on monthly intervals.

3. For more detail, please refer to the website of the People’s Bank of China at http://xian.pbc.gov.cn/xian/129483/132892/2647794/index.html

4. We also adjusted these parameters to conduct a robustness test, and the results are consistent.

5. The robustness test results are not reported in the article; interested readers can contact the authors for more information.

Additional information

Funding

This study was supported by the Fundamental Research Funds for the Central Universities [Grant no. 2019CDSKXYJSG0041] and the National Natural Science Foundation of China [Grant no. 91646126, 71974003].

Notes on contributors

Mengkai Chen

Mengkai Chen is a doctoral candidate at the School of Management Science and Real Estate, Chongqing University. He is also a faculty member at the school of Management Science and Engineering, Anhui University of Technology. His current research focus is housing policies and homeownership.

Yidong Wu

Yidong Wu is a doctoral candidate at the School of Public Economics and Administration, Shanghai University of Finance and Economics. His main research interests are in the areas of housing security programs and income distribution.

Guiwen Liu

Guiwen Liu is a professor at the School of Management Science and Real Estate, Chongqing University. His research focuses on housing market, urban design, and urban renewal.

Xianzhu Wang

Xianzhu Wang is a professor at the School of Business, Anhui University of Technology. He is also a PhD supervisor at Chongqing University. His research interests include real estate economy and housing policies.