The impact of household registration system reform: evidence from China

We construct a DSGE model with three sectors: households which are divided into urban registered residents and non-urban residents, firm, and government, calibrate and estimate the model with data of China. This study aims to evaluate the impact of household registration system (HRS) reform of China, and provides a theoretical thought to understand this reform. Impulse response analysis and counterfactual simulation show the short-term and long-term effects of the reform on output, consumption, and labour supply. The shock (1%) in public goods consumption increases labour supply and private consumption of non-urban registered residents by 0.21% and 0.42%, decreases by about 0.13% and 0.14% in urban registered residents, and increases in overall labour supply, consumption, and output levels by approximately 0.08%, 0.26% and 0.36%, respectively. While the impact of wage level increases labour supply and private consumption of non-urban registered residents by about 0.03% and 0.6%, about 0.03% and 0.25% of urban registered residents. This leads to increases of overall labour supply, consumption, and output levels by approximately 0.03%, 0.28% and 0.12%, respectively. Transfer payment shocks has a very weak effect. Overall, the economic effects of the household registration system reform policy are significant.