Strategic Authoritarianism: The Political Cycles and Selectivity of China's Tax Break Policy

American Journal of Political Science 65(4):845-861.

47 Pages Posted: 10 Aug 2020 Last revised: 30 Nov 2021

See all articles by Ling Chen

Ling Chen

Johns Hopkins University

Hao Zhang

Massachusetts Institute of Technology (MIT)

Date Written: August 3, 2020

Abstract

A rich literature has noted political business cycles in democracies. We argue that in an autocracy with strong bureaucratic institutions, the pressure of evaluation and promotion has also generated political cycles of tax-break policies. Furthermore, the timing and content of the evaluation have driven leaders to use tax breaks strategically to build economic performance, producing distributional consequences. Combining panel data of 1,510,153 firm-year observations, city-leader data from 1995 to 2007, and field interviews, we find that the tax-break rates dropped for most firms during mayors’ turnover years. In the first year of office, that is, the “busy year,” mayors needed to prioritize large firms and especially large foreign firms. Small domestic private firms bore the cost of tenure cycles. In the last year of the mayors’ tenure, that is, the “dust-settled” year, there was little incentive to seek promotion, and even important firms could not gain the mayors’ attention.

Keywords: political business cycle; China; tax; authoritarianism; bureaucrats; economic policy; institutions; firms

Suggested Citation

Chen, Ling and Zhang, Hao, Strategic Authoritarianism: The Political Cycles and Selectivity of China's Tax Break Policy (August 3, 2020). American Journal of Political Science 65(4):845-861. , Available at SSRN: https://ssrn.com/abstract=3666335 or http://dx.doi.org/10.2139/ssrn.3666335

Ling Chen (Contact Author)

Johns Hopkins University ( email )

1740 Massachusetts Ave NW
Washington, DC 20036
United States

Hao Zhang

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
Cambridge, MA 02139
United States

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