Title page 1

Contents 1

Abstract 3

1. Introduction 4

2. Background and Conceptual framework 7

2.1. Public LTCI policy in China 7

2.2. Conceptual framework 8

3. Empirical strategy and data 10

3.1. Data 10

3.2. Variables 11

3.3. Empirical model 14

4. Empirical Results 15

4.1. Treated and control group differences 15

4.2. The effect of LTCI policy on the development of enterprises 15

4.3. Component effects of LTCI policy 17

4.4. Heterogeneous analysis 18

4.5. Robustness checks 20

4.5.1. Placebo test 20

4.5.2. Alternative methods 21

5. Mechanisms 23

5.1. Market demand for formal care service 23

5.2. Government-related expenditures 25

6. Extended analysis: LTCI and labor demand 26

7. Discussions and Conclusions 28

Reference 30

Appendix 47

Tables 37

Table 1. Descriptive statistics 37

Table 2. Differences between treated and control groups 38

Table 3. The effect of LTCI policy on new entries and survival of enterprises 39

Table 4. Differential effects of LTCI benefits 40

Table 5. The heterogeneous effect of LTCI policy 41

Table 6. Robustness checks 42

Table 7. Mechanism: market demand for elderly care 43

Table 8. Mechanism: government-related expenditures 44

Table 9. The effect of LTCI on employees of elderly care enterprises 45

Table 10. The effect of LTCI on employment in related industries 46

Figures 33

Figure 1. Yearly aggregate number of elderly care enterprises nationwide 33

Figure 2. Average number of enterprises per city over time: treated and control groups 34

Figure 3. Event study 35

Figure 4. Placebo test based on false treatment status 36

Appendix Tables 48

Table A1. The summary of pilot cities 48

Table A2. Variable definition 50

Table A3. Balance test 51

Table A4. More robustness checks 52

Appendix Figures 47

Figure A1. Event study based on Sun & Abraham (2021) 47