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

55 Pages Posted: 1 Jun 2022

See all articles by Daniel Zhiyun Li

Daniel Zhiyun Li

Durham University Business School

Zeren Li

Yale University

Qi Zhang

affiliation not provided to SSRN

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

Suggested Citation

Li, Daniel Zhiyun and Li, Zeren and Zhang, Qi, Downward Power Consolidation and Public Investment: Theory and Evidence from China. Available at SSRN: https://ssrn.com/abstract=4125009 or http://dx.doi.org/10.2139/ssrn.4125009

Daniel Zhiyun Li

Durham University Business School ( email )

Mill Hill Lane
Durham, DH1 3LB
United Kingdom

Zeren Li (Contact Author)

Yale University ( email )

New Haven, CT 06510
United States

Qi Zhang

affiliation not provided to SSRN ( email )

No Address Available

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