Show Me the Money: Interjurisdiction Political Competition and Fiscal Extraction in China

American Political Science Review (Forthcoming)

51 Pages Posted: 14 Jul 2012 Last revised: 2 Mar 2014

See all articles by Xiaobo Lü

Xiaobo Lü

University of Texas at Austin

Pierre F. Landry

University of Pittsburgh

Date Written: January 20, 2014

Abstract

We argue that interjurisdiction competition in authoritarian regimes engenders a specific logic for taxation. Promotion-seeking local officials are incentivized to signal loyalty and competence to their principals through tangible fiscal revenues. The greater the number of officials accountable to the same principal, the more intense political competition is, resulting in higher taxation; however, too many officials accountable to the same principal leads to lower taxation due to shirking by uncompetitive officials and the fear of political instability. Using a panel dataset of all Chinese county-level jurisdictions from 1999-2006, we find strong evidence for an inverse U-shaped relationship between the number of county-level jurisdictions within a prefecture — our proxy for the intensity of political competition — and fiscal revenues in most provinces but not so in politically unstable ethnic minority regions. The results are robust to various alternative specifications, including models that account for heterogeneous county characteristics and spatial interdependence.

Keywords: Authoritarian regimes, local government, political competition, taxation, China

Suggested Citation

Lü, Xiaobo and Landry, Pierre F., Show Me the Money: Interjurisdiction Political Competition and Fiscal Extraction in China (January 20, 2014). American Political Science Review (Forthcoming). Available at SSRN: https://ssrn.com/abstract=2106449 or http://dx.doi.org/10.2139/ssrn.2106449

Xiaobo Lü (Contact Author)

University of Texas at Austin ( email )

Department of Government
Mail Stop: A1800
Austin, TX 78712
United States

HOME PAGE: http://www.xiaobolu.com

Pierre F. Landry

University of Pittsburgh ( email )

4L01 Posvar Hall
Pittsburgh, PA 15260
United States
412-648-7250 (Phone)
412-648-7277 (Fax)

HOME PAGE: http://www.pitt.edu/~politics/faculty.html

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