Private Returns to Public Investment: Political Career Incentives and Infrastructure Investment in China

67 Pages Posted: 15 Dec 2018 Last revised: 20 Mar 2020

See all articles by Zhenhuan Lei

Zhenhuan Lei

University of Wisconsin - Madison - La Follette School of Public Affairs; University of Wisconsin - Madison - Department of Political Science

Junlong Aaron Zhou

New York University (NYU), Department of Politics, Students

Date Written: March 17, 2020

Abstract

Why do politicians who have short tenure expectations have incentives to invest in long-term infrastructure projects? This mismatch between politicians' short tenures and the long-term needed for infrastructure projects to come to fruition is generally expected to result in under-investment in critical infrastructure. However, recent data show that China makes massive investments in large-scale, long-term transportation projects. By proposing a political exchange model, we demonstrate a fundamental synergy between the incentives of short-term mayors and of provincial leaders that is realized as a result of subway projects. With both a difference-in-differences design and a fuzzy regression discontinuity design, we show that subway projects significantly increase the promotion chances of city mayors. Additional tests also confirm the mechanism of our theory. Mayors who obtain subway projects deliver economic benefits to provincial leaders. The provincial politicians' prospects of promotion are significantly improved thanks to these economic returns.

Keywords: China, Distributive Politics, Infrastructure Investment, Political Selection

Suggested Citation

Lei, Zhenhuan and Zhou, Junlong, Private Returns to Public Investment: Political Career Incentives and Infrastructure Investment in China (March 17, 2020). Available at SSRN: https://ssrn.com/abstract=3288943 or http://dx.doi.org/10.2139/ssrn.3288943

Zhenhuan Lei (Contact Author)

University of Wisconsin - Madison - La Follette School of Public Affairs ( email )

1225 Observatory Drive
Madison, WI 53705
United States

University of Wisconsin - Madison - Department of Political Science ( email )

Madison, WI
United States

Junlong Zhou

New York University (NYU), Department of Politics, Students ( email )

New York, NY
United States

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