Public Investment As Downward Benefit Distribution: Theory and Evidence from China's Public-Private Partnership Programs
58 Pages Posted: 28 Jul 2021 Last revised: 11 Jan 2023
Date Written: January 11, 2023
Although previous studies have documented the political cycle of public investment in various countries, we still know little about its distributional consequences. We address this question by analyzing an emerging form of public infrastructure investment in China: public--private partnership (PPP). We argue that mayors use infrastructure investment to distribute benefits, thereby securing local compliance and support. Our empirical analysis draws on a unique dataset that matches PPP contracts with Chinese mayors who served from 2010 to 2017. We demonstrate a salient tenure effect: mayors decrease public investment over time during their tenure. Moreover, the tenure effect is more salient among mayors who lack local work experience. Contract-level evidence shows that mayors disproportionately allocate more investment to local firms, especially local state-owned enterprises, to garner local support. We show that the downward tenure effect is mainly driven by officials' survival concerns rather than promotion incentives.
Keywords: public-private partnership, tenure effect, downward benefit distribution, China
JEL Classification: H41, H74, R11
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