Secondly, China’s employment fluctuation is smooth while the investment and capital stock are much more volatile. This paper tries to explain the features of China’s business cycle from the perspective of credit constraint. To do so, we establish a RBC model incorporating heterogeneous consumers and heterogeneous firms. In this model, part of the consumers and firms are subject to the credit constraint due to the imperfect financial market. We thus study the implication of credit constraint to China’s business cycle. In respect of the omnipresence and omnipotence of China’s government in macroeconomic management, we introduce the government consumption into the model. This enables us to capture the impact of the government consumption shock to consumers and firms. Based on the simulation results, this paper finds: in regard to China’s business cycle, credit constraint is an important transmission mechanism, and government consumption is a momentous source of fluctuation we should not ignore.
Key Words:Credit Constraint; Investment Wedge; Government Consumption; Real Business Cycle
JEL Classification:E21, E22, E23, E24, E27

 Visits and Local Bureaucrats Accountability: A New Political Economy Approach

Yang Ruilong^a, Yin Zhendong^b and Gui Lin^c
(a: School of Economics, Renmin University of China; b: School of Economics, Shandong University;

c: School of Economics, Jiangxi University of Finance & Economics) 

 Abstract:Since 2003, the quantities of letters and visits have been soaring dramatically in China. Researches on letters and visits are very important for establishing our harmonious society and understanding the implementation of the political institutions. We build theoretical models via contract theory, and regard visits as an accountability mechanism: by accountability on local bureaucrats after the visits, the central government can constrain their behaviour and encourage them to work harder for local residents. The central government should choose the optimal level of accountability because too stringent accountability would strengthen local bureaucrats’ inclinations to intercept visits and therefore may decrease their effort to provide services. And accountability is increasing in the cost of visit to central government. According to our model, with the development of economy, advancement in science and the rise of network society, the accountability will be gradually reinforced. We also discuss some extensions and give some policy advice.
Key Words:Letters and Visits; Intercepting Visits; Local Bureaucrats; Accountability
JEL Classification:D73, D78, P16