Downward Power Consolidation and Public Investment: Theory and Evidence from China

53 Pages Posted: 28 Jul 2021 Last revised: 28 Oct 2022

See all articles by Daniel Z. Li

Daniel Z. Li

Durham University Business School

Zeren Li

Yale University

Qi Zhang

Fudan University - China Center for Economic Studies (CCES)

Date Written: July 26, 2022

Abstract

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

Suggested Citation

Li, Daniel Z. and Li, Zeren and Zhang, Qi, Downward Power Consolidation and Public Investment: Theory and Evidence from China (July 26, 2022). Available at SSRN: https://ssrn.com/abstract=3893272 or http://dx.doi.org/10.2139/ssrn.3893272

Daniel Z. Li

Durham University Business School ( email )

Mill Hill Lane
Durham, Durham DH1 3LB
United Kingdom

HOME PAGE: http://danielzli.weebly.com/

Zeren Li (Contact Author)

Yale University ( email )

New Haven, CT 06510
United States

Qi Zhang

Fudan University - China Center for Economic Studies (CCES) ( email )

Shanghai
China

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