Although dual economy models are widely recognized for their explanatory power and applications in development economics, their lack of micro-economic foundations and the associated loss of clarity has led to mainstream economists underplaying their importance. By providing a micro-economic...

Using three comparable national representative household surveys for China in 1988, 1995 and 2002, this paper provides micro level evidence of a policy of absolute regressive taxation and an inverted welfare system. It reviews the economic effects of taxes and subsides and shows that a dual and...

We explain a puzzling contradiction: theory often predicts that higher inequality leads to higher taxation, yet empirical results are mixed. In our model agents with heterogeneous wealth vote for the level of tax and make occupational choices to be workers or entrepreneurs. The tax chosen by the...