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Government Competition and Preference for Productive Expenditure: The Political Economy in County to District Reforms in China

【Authors】
ZHANG Li, PI Jiayong & SONG Guangxiang
【WorkUnit】
ZHANG Li (Sun Yat-sen University,519082)
PI Jiayong (Peking University,518055)
SONG Guangxiang (Peking University,100871)
【Abstract】

Improving the wellbeing of the people is the fundamental goal of economic development, whereas a lot of researches point out that local governments show preference for productive expenditure. The paper focuses on China's county-to-district reforms and uses national county-level panel data from 2000 to 2007 and difference-in-difference method to evaluate its impact on governmental preference for productive expenditure. We find that the reformed counties which become districts of prefecture-level cities spend less on productive infrastructure but more on the people's wellbeing. Moreover, the administrative expenses of reformed counties grow significantly. The reason behind the facts is that county-to-district reforms mitigate government competition to some extent and reduce the incentive of reformed county governments to infrastructure investments. This paper evaluates the influence on fiscal expenditure preferences from the perspective of government competition and provides administrative adjustment evidence for improving local fiscal expenditure structure

JEL:H52, H53, H54

【KeyWords】
County-to-District Reform, Government Competition, Preference for Productive Expenditure