assumptions (e.g. linear Engel curves) transitional policy leads to a fall in the wel-
fare of state employees. Non-state employees, who have been the engine of growth
in China, experience an increase in welfare. Whilst we have developed the partial
equilibrium framework for understanding DTP, an extension would be to embed
it in a simple general equilibrium framework. This would involve modelling firms
(both SOE and private) and the government.
26
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