Disguised Corruption: Evidence from Consumer Credit in China

Abstract

Using a comprehensive sample of credit card data from a leading Chinese bank, we find that government bureaucrats receive 16% higher credit lines than non-bureaucrats with similar income and demographics, but their accounts experience a significantly higher likelihood of delinquency and debt forgiveness. These patterns are concentrated among bureaucrats with greater power and located in more “corrupt” cities. Areas associated with greater credit provision to bureaucrats open more branches and receive more deposits from the local government. Using staggered crackdowns of provincial-level political officials as exogenous shocks to the risk of corruption investigation, we find that the new credit cards originated to bureaucrats do not enjoy a credit line premium, and bureaucrats’ delinquency and reinstatement rates are no higher than those of non-bureaucrats in the treated provinces during the post-crackdown period. We use our estimates to infer the size of corruption and explore the impact on aggregate economic outcomes.

Keywords: Corruption, Credit Cards, Credit, Debt, Household Finance, Government, Bureaucrats, Banking, Political Connections, China

JEL Classification: D73, P26