Stimulated Political Decisions: Local Leadership Turnover and Firm Subsidies in China

52 Pages Posted: 27 Jul 2020 Last revised: 15 Sep 2022

See all articles by Yue Hou

Yue Hou

Department of Political Science, University of Pennsylvania

Siyao Li

University of Pittsburgh

Date Written: September 3, 2022

Abstract

How do politicians distribute government resources in regimes with no electoral considerations? We propose that new politicians minimize political risks by favoring politically important actors: state-owned enterprises (SOEs), but they adjust their behavior as they establish personal ties with private businesses. Using firm-level subsidies data after the 2008 stimulus in China, we find that new provincial governors, immediately after taking office, distribute a significantly larger proportion of subsidies to SOEs relative to private firms. The effect attenuates as new governors learn about local conditions and establish connections with private firms. We find suggestive evidence that governors who adopt such a strategy are more likely to be promoted. Contrary to conventional wisdom that the state always favors state-owned firms, we show that SOEs benefit from the stimulus package only in the short-run.

Suggested Citation

Hou, Yue and Li, Siyao, Stimulated Political Decisions: Local Leadership Turnover and Firm Subsidies in China (September 3, 2022). Available at SSRN: https://ssrn.com/abstract=3640646 or http://dx.doi.org/10.2139/ssrn.3640646

Yue Hou (Contact Author)

Department of Political Science, University of Pennsylvania ( email )

133 S. 36th St.
University of Pennsylvania
Philadelphia, PA 19104
United States

HOME PAGE: http://yue-hou.com

Siyao Li

University of Pittsburgh

135 N Bellefield Ave
Pittsburgh, PA 15260
United States

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