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Who Benefits from the Housing Provident Fund System in China? An Analysis of the Internal Rate of Return for Typical Employees with Different Incomes

Author

Listed:
  • Xiang Zhang

    (School of Public Affairs, Zhejiang University, Hangzhou 310058, China
    Center of Social Welfare and Governance, Zhejiang University, Hangzhou 310058, China)

  • Yanhuang Zheng

    (School of Public Affairs, Zhejiang University, Hangzhou 310058, China)

  • Chuanhao Tian

    (School of Public Affairs, Zhejiang University, Hangzhou 310058, China)

Abstract

The Housing Provident Fund System (HPFS) was established in China in the 1990s as a welfare program to offer low-cost loans and encourage the purchasing of houses. However, there has been some controversy over the income redistribution effect of HPFS. Previous studies focused on the effect of low-interest-rate loans but ignored the effects of tax exemptions and low-interest-rate deposits. This paper introduces a lifetime cash flow model which considers the effects of low-interest-rate loans, tax exemptions, and low-interest-rate deposits together. It compares the internal rate of return (IRR) for typical employees with different incomes in four situations: whether or not HPFS participation and whether or not house purchasing. We found that the IRRs of the typical low-income HPFS participants who buy houses with HPFS loans were lower than the IRRs of non-participants who buy houses with commercial mortgages without HPFS participation. For the typical middle-income employees, there is not much difference in IRR between the two situations. Only the typical high-income employees can benefit from HPFS participation, and this is mostly due to the effect of the tax exemptions, rather than the effect of low-interest-rate loans. Increasing the coverage of HPFS and HPFS loans among low-income employees will not improve the income redistribution effect of HPFS.

Suggested Citation

  • Xiang Zhang & Yanhuang Zheng & Chuanhao Tian, 2021. "Who Benefits from the Housing Provident Fund System in China? An Analysis of the Internal Rate of Return for Typical Employees with Different Incomes," Sustainability, MDPI, vol. 13(9), pages 1-18, April.
    • Handle: RePEc:gam:jsusta:v:13:y:2021:i:9:p:4622-:d:540628
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    References listed on IDEAS

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    Cited by:

    1. Anquan Zhang & Lu Liu, 2025. "Does the housing provident fund cause housing inequality? The micromechanism and macroeffect in China," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 11(1), pages 1-28, December.
    2. Jie Chen & Wei Wang & Yan Song, 2023. "Economic Potential Gain, Income Uncertainty, and Rural Migrants’ Urban Homeownership: Evidence from China," Sustainability, MDPI, vol. 15(9), pages 1-22, April.

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