The unintended impact of housing provident fund on income inequality in urban China

Abstract

We use the China Household Income Project (CHIP) data to evaluate the impact of the Housing Provident Fund (HPF) on income inequality in urban China. We find that urban residents differ significantly in their accessibility to and intensity of utilization of the HPF. Those who work in the public sector, in monopolistic industries, and possess managerial or professional occupations are more likely to benefit from the HPF, leading to further income inequality. Our research also emphasizes four mechanisms through which the HPF affects income inequality. The foregone interest due to compulsory HPF saving is the only mechanism that decreases the inequality, whereas the employer's match, personal income tax exemption on the HPF, and lower interest expense due to acquiring the HPF loan increase inequality. The evidence highlights the HPF's unintended redistributive impacts and thus the necessity of enhancing equity in the ongoing HPF reform.