The Impact of Migration Controls on Urban Fiscal Policies and the Intergenerational Transmission of Human Capital in China

Using newly available data, we document that internal migrants do not enjoy the same access to local public goods and services as city residents in China. We estimate a spatial overlapping generations model with heterogeneous households to quantify the impact of the Hukou system on urban fiscal policies and access to educational opportunities. We find that migrants provide large fiscal externalities to all major cities. We show the feasibility of alternative internal migration policies that offer the potential of decreasing the inequality within China while at the same time increasing the overall level of human capital in the economy.