Downward Power Consolidation and Public Investment: Theory and Evidence from China
53 Pages Posted: 28 Jul 2021 Last revised: 28 Oct 2022
Date Written: July 26, 2022
What determines the dynamic patterns of local public investment in authoritarian countries? We analyze a unique dataset that matches public-private partnership (PPP) projects with Chinese mayors who served from 2010 to 2017, and document a robust tenure effect in public investment. Mayors decrease public investment over time during their tenure. We propose a theory of downward power consolidation for this tenure effect, and argue that mayors prioritize downward benefit distribution using PPP investment to consolidate power. We provide evidence for this hypothesis. Contract-level evidence shows that mayors allocate proportionally more investment to local firms, particularly local state-owned enterprises. Moreover, the tenure effect becomes more salient among mayors who lack local work experience or patronage connections with upper-level officials.
Keywords: Political Budget Cycle, Public Investment, Public-private Partnership, Power Consolidation, China
JEL Classification: H41, H74, R11
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