NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Provincial and Local Governments in China: Fiscal Institutions and Government Behavior

Roger H. Gordon, Wei Li

Chapter in NBER book Capitalizing China (2013), Joseph P. H. Fan and Randall Morck, editors (p. 337 - 369)
Conference held December 15-16, 2009
Published in November 2012 by University of Chicago Press
© 2013 by the National Bureau of Economic Research

This chapter examines the economic incentives available to local officials in China. The key hypothesis is that the welfare of local officials is heavily dependent on the amount of government revenue collected in their jurisdiction, minus the amount needed to provide services to local residents. The chapter is organized as follows. Section 8.1 reviews literature on the forms of oversight of local officials. Section 8.2 develops an alternative model in which the incentives faced by officials depend on the tax revenue they receive minus whatever they need to spend on local public services. Section 8.3 examines how these incentives were affected by tax law changes and market reforms. Section 8.4 considers the additional incentives faced by officials due to national government control over their possible promotion or demotion. Section 8.5 looks at the effects of policy reforms on incentives.

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This paper was revised on May 30, 2014

Acknowledgments

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This chapter first appeared as NBER working paper w16694, Provincial and Local Governments in China: Fiscal Institutions and Government Behavior, Roger H. Gordon, Wei Li
Commentary on this chapter: Comment, Zhigang Li
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