Subsidies for Sale: Post-government Career Concerns, Revolving-Door Channels, and Public Resource Misallocation in China
72 Pages Posted: 7 May 2021 Last revised: 31 Jan 2022
Date Written: January 30, 2022
While the existing literature has focused on how revolving-door officials deliver preferential treatment to firms after leaving public office, this paper shows that public officials distort public resource allocation for private-sector job opportunities while still in office. To test this theory, I construct a new dataset that links 168,550 corporate subsidy programs approved by multiple levels of governments with former officials who joined publicly listed Chinese firms between 2007 and 2019. I show that forward-looking officials provide favorable subsidies to their future employers. To verify the exchange of favors, I document that firms repay officials who have provided favorable subsidies by hiring and paying them enormous amounts of cash compensation. I show that the exchange of favors leads to salient allocation distortion of public resources. Finally, I find that the reputation cost is the mechanism through which this quid pro quo relationship is sustained.
Keywords: Business-Government Relations, Revolving-Door Officials, Corruption, China
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