Essays in macroeconomics

Abstract

This dissertation examines how tax and insurance institutions shape individuals’ occupational choices, entrepreneurial behavior, and the distribution of wealth across different policy environments. It consists of three chapters that combine structural modeling with empirical estimation to analyze the United States and China. Chapter 1 studies how employer-sponsored health insurance (EHI) in the U.S. influences entry into and out of entrepreneurship through a dynamic general equilibrium (DGE) model. Chapter 2 turns to China’s progressive income tax system, providing both individual- and household-level tax-transfer estimates. These estimates serve as key inputs for Chapter 3, which develops a DGE model to quantify the impact of China’s corporate tax reform on entrepreneurial selection and risk-taking.

CHAPTER 1: EMPLOYER-SPONSORED HEALTH INSURANCE AND OCCUPATIONAL CHOICE IN THE US Chapter 1 develops a dynamic general equilibrium model to examine how employer-sponsored health insurance (EHI) influences occupational choices in the United States. Unlike many OECD countries where health coverage is provided through a universal system, the U.S. re lies primarily on employment-based insurance. Most working-age individuals obtain coverage through their employers, which introduces a connection between health insurance access and job status. This institutional arrangement creates financial incentives that may shape decisions regarding entrepreneurship versus wage work.

The model features heterogeneous agents who face idiosyncratic income and health expenditure shocks and make endogenous decisions on their occupation and, for entrepreneurs, on firm-level EHI provision.

Calibrated to U.S. data, the analysis reveals that health-related financial risks generate both inflows into entrepreneurship among high-wealth individuals seeking to pool risk and outflows among the financially constrained, thereby shaping the composition of the entrepreneurial sector. I analyze three counterfactual policy experiments which yield distinct aggregate and distributional outcomes.

Mandating that all firms provide EHI reduces the entrepreneur share from 9.52% to 8.13% and increases wealth inequality, as the fixed costs of provision disproportionately deter marginal, less-wealthy entrepreneurs. In contrast, replacing the existing tax deduction with a flat-rate EHI subsidy encourages broader entry, raising the entrepreneur share to 11.18% while modestly reducing wealth inequality by improving affordability for lower-wealth individuals. Finally, eliminating the wage premium paid by non-EHI firms boosts entrepreneurship to 10.88% by lowering labor costs for firms not offering insurance, but this comes at the cost of reduced EHI coverage among small firms.

CHAPTER 2: ESTIMATING CHINA’S PROGRESSIVE PERSONAL INCOME TAX AND TRANSFER SYSTEM Chapter 2 provides empirical estimates of China’s progressive personal income tax and transfer system using the parametric framework of Bénabou (2002).

Using China Household Finance Survey (CHFS) data for 2011, 2013, and 2017, I estimate net tax-transfer functions at both individual and household levels. The results indicate moderate progressivity with a parameter ( ̂𝜏) of 0.0354 for individual workers and 0.0661 for individual business owners. At the household level, the aggregate ̂𝜏 is 0.0506. The system reduces the Gini coefficient from a pre-government average of 0.69 to a post-government average of 0.64, representing approximately 7% reduction in inequality—modest compared to the OECD average of around 27%. These empirical estimates serve as key inputs for the subsequent structural analysis (in Chapter 3).

CHAPTER 3: TAXATION AND RISKY BUSINESS IN CHINA Private enterprises play a crucial role in China’s economy, contributing over 60% of GDP and providing over 80% of urban employment.

Understanding how tax policy affects not only business creation but also the types of risks entrepreneurs take is important for innovation and economic growth. This chapter examines how corporate tax reductions influence both entrepreneurial entry and the choice between conservative versus ambitious business strategies.

The model features heterogeneous households who face idiosyncratic income and productivity shocks and make endogenous decisions over occupational choice and, conditional on becoming entrepreneurs, over the selection of low- versus high-risk business projects. The baseline model predicts an entrepreneur share of 11.20% and a high-risk share of 30.72%. Counterfactual experiments show that reducing the corporate tax rate from 25% to 15% increases the entrepreneur share to 12.80% and the high-risk share to 32.45%, boosting aggregate output by 2.00%. This policy lowers the overall tax burden on businesses, thereby raising the expected returns to entrepreneurship and encouraging entry, particularly into higher-return but riskier ventures.

Alternative policies yield different outcomes. Relaxing borrowing constraints produces the largest output gain (4.00%) and increases the share of high-risk entrepreneurs to 37.89%, as more financially constrained households are able to start businesses and invest in higher-return projects. However, this also lowers their survival rate from 0.44 to 0.41, suggesting that easier access to credit may encourage entry by firms that are less equipped to withstand income volatility. In contrast, introducing a 40% loss offset mechanism raises the survival rate of high-risk firms to 0.52 while moderately increasing their share to 32.68%. By mitigating downside risks, this policy enables households to undertake riskier ventures with greater confidence, and does so without substantially increasing fragility in the sector.

BROADER IMPLICATIONS: The dissertation contributes to the literature by providing quantitative frameworks for analyzing the intersection of tax policy, insurance institutions, and entrepreneurial behavior in two major economies.

The findings highlight how institutional design affects not only the level of entrepreneurship but also the composition and risk profile of entrepreneurial ventures, with important implications for innovation and economic growth.