Taxation and Migration of Peasants: Evidence from the Tax-for-Fee Reform in Rural China

Abstract

This paper studies the effect of rural taxation on Chinese peasants’ mobility towards urban areas. We find that the tax alleviation due to the tax-for-fee reform significantly reduces rural-to-urban migration, with a 10% decline in tax leading to a 10% reduction in migration. We provide compelling evidence that the result is not driven by unintended policy effects of the tax-for-fee reform in fostering rural non-agricultural job opportunities. The effect of taxation is more pronounced and precisely estimated on migration across provinces or at older ages. To the best of our knowledge this is the first study to identify the tax-induced migration among low-skilled and low-income laborers.