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

Abstract

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

Suggested Citation

Li, Zeren, Subsidies for Sale: Post-government Career Concerns, Revolving-Door Channels, and Public Resource Misallocation in China (January 30, 2022). Available at SSRN: https://ssrn.com/abstract=3839170 or http://dx.doi.org/10.2139/ssrn.3839170

Zeren Li (Contact Author)

Yale University ( email )

New Haven, CT 06510
United States

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