Abstract This paper argues that the dramatic population decline in China in recent years is an unintended consequence of local governments’ land allocation decisions, driven by industrial discounts in the land market. We construct a dynamic spatial overlapping-generation framework to capture the interplay between governments’ land allocation, population controls, and public education expenditures on household family-planning decisions. By estimating the model to match empirical population distributions and conducting counterfactual analysis, we find two key results: First, under the One Child Policy, China’s realized fertility rate was significantly below the fertility rate needed for natural population replacement. However, shifting to a free land market could potentially have reduced this fertility rate gap by 16.33%. Second, the geographic variations in fertility rates across cities increased following the removal of the fine, suggesting that the effects of land allocation and housing prices would become more pronounced in the future.
Conferences: Presented at the 18th North American Meeting of the Urban Economics Association (UEA), the 94th Annual Meeting of the Southern Economic Association (SEA), the 19th Economics Graduate Student Conference at Washington University in St. Louis, and the 2024 Carolina Region Empirical Economics Day (CREED), the 2nd Summer Meeting in Urban Economics, China, the 2024 UVa Huskey Conference, the 6th GSIPE conference; Selected by the 2024 Royal Economic Society (RES) PhD Conference, the 2024 SMU-Jinan Conference on Urban and Regional Economics. Participant of 2024 NBER Summer Institute International Trade & Investment Meeting, the 1st International Economics Annual Workshop at NC State University, the 7th Mid- Atlantic International Trade Workshop.
