Hostname: page-component-7c8c6479df-5xszh Total loading time: 0 Render date: 2024-03-28T01:15:50.628Z Has data issue: false hasContentIssue false

Show Me the Money: Interjurisdiction Political Competition and Fiscal Extraction in China

Published online by Cambridge University Press:  18 July 2014

XIAOBO LÜ*
Affiliation:
University of Texas
PIERRE F. LANDRY*
Affiliation:
University of Pittsburgh
*
Xiaobo Lü is Assistant Professor of Government, University of Texas at Austin, 158 W 21st St. Stop A1800, Austin, Texas 78712 (xiaobolu@austin.utexas.edu).
Pierre Landry is Associate Professor of Political Science, University of Pittsburgh, 4600 Wesley W. Posvar Hall, Pittsburgh, PA 15260 (pflandry@pitt.edu).

Abstract

We argue that interjurisdiction competition in authoritarian regimes engenders a specific logic for taxation. Promotion-seeking local officials are incentivized to signal loyalty and competence to their principals through tangible fiscal revenues. The greater the number of officials accountable to the same principal, the more intense political competition is, resulting in higher taxation; however, too many officials accountable to the same principal leads to lower taxation due to shirking by uncompetitive officials and the fear of political instability. Using a panel dataset of all Chinese county-level jurisdictions from 1999–2006, we find strong evidence for an inverse U-shaped relationship between the number of county-level jurisdictions within a prefecture—our proxy for the intensity of political competition—and fiscal revenues in most provinces but not so in politically unstable ethnic minority regions. The results are robust to various alternative specifications, including models that account for heterogeneous county characteristics and spatial interdependence.

Type
Research Article
Copyright
Copyright © American Political Science Association 2014 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Andersen, Jørgen J., and Ross, Michael L.. 2014. “The Big Oil Change: A Closer Look at the Haber-Menaldo Analysis.” Comparative Political Studies 47 (7): 9931021.CrossRefGoogle Scholar
Bernstein, Thomas P., and , Xiaobo. 2003. Taxation without Representation in Rural China. New York: Cambridge University Press.CrossRefGoogle Scholar
Besley, Timothy, and Persson, Torsten. 2013. “Taxation and Development.” In Handbook of Public Economics, eds. Auerbach, A. J., Chetty, R., Feldstein, M., and Saez, E.. New York: Elsevier. 51110.CrossRefGoogle Scholar
Bo, Zhiyue. 2002. Chinese Provincial Leaders: Economic Performance and Political Mobility since 1949. Armonk, NY: M. E. Sharpe.Google Scholar
Brautigam, Deborah. 2008. “Introduction: Taxation and State-building in Developing Countries.” In Taxation and State-building in Developing Countries: Capacity and Consent, eds. Brautigam, D., Fjeldstad, O.-H., and Moore, M.. New York: Cambridge University Press. 133.CrossRefGoogle Scholar
Cai, Hongbin, and Treisman, Daniel. 2005. “Does Competition for Capital Discipline Governments? Decentralization, Globalization, and Public Policy.” American Economic Review 95 (3): 817–30.CrossRefGoogle Scholar
Cai, Hongbin, and Treisman, Daniel. 2006. “Did Government Decentralization Cause China's Economic Miracle?World Politics 58 (4): 505–35.CrossRefGoogle Scholar
Chaudhry, Kiren A. 1997. The Price of Wealth: Economies and Institutions in the Middle East. Ithaca, NY: Cornell University Press.Google Scholar
Chen, An. 2008. “The 1994 Tax Reform and Its Impact on China's Rural Fiscal Structure.” Modern China 34 (3): 303–43.CrossRefGoogle Scholar
Chen, Xi. 2012. Social Protest and Contentious Authoritarianism in China. New York: Cambridge University Press.Google Scholar
Chung, Jae Ho, and Lam, Tao-chiu. 2004. “China's ‘City System’ in Flux: Explaining Post-Mao Administrative Changes.” China Quarterly 180: 945–64.CrossRefGoogle Scholar
Dabla-Norris, Era. 2005. Issues in Intergovernmental Fiscal Relations in China. Washington, DC: International Monetary Fund.CrossRefGoogle Scholar
Dunning, Thad. 2008. Crude Democracy: Natural Resource Wealth and Political Regimes. New York: Cambridge University Press.CrossRefGoogle Scholar
Edin, Maria. 2003. “State Capacity and Local Agent Control in China: CCP Cadre Management from a Township Perspective.” China Quarterly 173: 3552.CrossRefGoogle Scholar
Franzese, Robert J., and Hays, Jude C.. 2006. “Strategic Interaction among EU Governments in Active Labor Market Policy-making.” European Union Politics 7 (2): 167–89.CrossRefGoogle Scholar
Franzese, Robert J., and Hays, Jude C.. 2007. “Spatial Econometric Models of Cross-sectional Interdependence in Political Science Panel and Time-series-cross-section Data.” Political Analysis 15 (2): 140–64.CrossRefGoogle Scholar
Gibbs, Michael John. 1989. “Promotions, Compensation, and Firm Organization.” Ph.D. diss. University of Chicago.Google Scholar
Gibbs, Michael. 1995. “Incentive Compensation in a Corporate Hierarchy.” Journal of Accounting and Economics 19 (2–3): 247–77.CrossRefGoogle Scholar
Gordon, Roger H., and Li, Wei. 2011. “Provincial and Local Governments in China: Fiscal Institutions and Government Behavior.” National Bureau of Economic Research Working Paper Series No. 16694.CrossRefGoogle Scholar
Greene, Kenneth F. 2009. Why Dominant Parties Lose: Mexico's Democratization in Comparative Perspective. New York: Cambridge University Press.Google Scholar
Guo, Gang. 2007. “Retrospective Economic Accountability under Authoritarianism.” Political Research Quarterly 60 (3): 378–90.Google Scholar
Guo, Gang. 2009. “China's Local Political Budget Cycles.” American Journal of Political Science 53 (3): 621–32.CrossRefGoogle Scholar
Haber, Stephen, and Menaldo, Victor. 2011. “Do Natural Resources Fuel Authoritarianism? A Reappraisal of the Resource Curse.” American Political Science Review 105 (1): 126.CrossRefGoogle Scholar
Henderson, J. Vernon, Storeygard, Adam, and Weil, David N.. 2012. “Measuring Economic Growth from Outer Space.” American Economic Review 102 (2): 9941028.CrossRefGoogle ScholarPubMed
Holz, Carsten A. 2004. “Deconstructing China's GDP Statistics.” China Economic Review 15 (2): 164202.CrossRefGoogle Scholar
Huang, Yasheng. 1996. Inflation and Investment Controls in China: The Political Economy of Central-local Relations during the Reform Era. New York: Cambridge University Press.Google Scholar
Huang, Yasheng. 2008. Capitalism with Chinese Characteristics: Entrepreneurship and the State. New York: Cambridge University Press.CrossRefGoogle Scholar
Jia, Kang, and Zhao, Houquan. 2008. Zhongguo Caishui Tizhi Gaige 30 Nian Huigu yu Zhangwang (Retrospective and Prospective Views on China's Finance and Taxation Institutional Reform). Beijing: People's Press.Google Scholar
Jia, Ruixue, Kudamatsu, Masayuki, and Seim, David. 2013. “Complementary Roles of Connections and Performance in Political Selection in China.” Working Paper.CrossRefGoogle Scholar
Jin, Hehui, Qian, Yingyi, and Weingast, Barry R.. 2005. “Regional Decentralization and Fiscal Incentives: Federalism, Chinese Style.” Journal of Public Economics 89 (9–10): 1719–42.CrossRefGoogle Scholar
Karachiwalla, Naureen, and Park, Albert. 2012. “Promotion Incentives in the Public Sector: Evidence from Chinese Schools.” Working Paper.Google Scholar
Kennedy, John J. 2007. “The Implementation of Village Elections and Tax-for-Fee Reform in Rural Northwest China.” In Grassroots Political Reform in Contemporary China, eds. Perry, E. J. and Goldman, M.. Cambridge, MA: Harvard University Press. 4874.CrossRefGoogle Scholar
Kung, James K., and Chen, Shuo. 2011. “The Tragedy of the Nomenklatura: Career Incentives and Political Radicalism during China's Great Leap Famine.” American Political Science Review 105 (1): 2745.CrossRefGoogle Scholar
Kung, James K., and Chen, Ting. 2013. “The Mystery of Authoritarian Growth: Land Revenue and the Career Concerns of China's Local Leaders.” Working Paper.Google Scholar
Landry, Pierre F. 2008. Decentralized Authoritarianism in China: The Communist Party's Control of Local Elites in the Post-Mao Era. New York: Cambridge University Press.CrossRefGoogle Scholar
Landry, Pierre F. 2011. “Bureaucratic Instability at the County Level (1980–2005).” Working Paper.Google Scholar
Li, Hongbin, and Zhou, Li-An. 2005. “Political Turnover and Economic Performance: The Incentive Role of Personnel Control in China.” Journal of Public Economics 89 (9–10): 1743–62.CrossRefGoogle Scholar
Li, Lixing. 2011. “The Incentive Role of Creating “Cities” in China.China Economic Review 22 (1): 172–81.CrossRefGoogle Scholar
Liu, Mingxing, Xu, Zhigang, Su, Fubing, and Tao, Ran. 2012. “Rural Tax Reform and the Extractive Capacity of Local State in China.” China Economic Review 23 (1): 190203.CrossRefGoogle Scholar
Manion, Melanie. 1993. Retirement of Revolutionaries in China: Public Policies, Social Norms, Private Interests. Princeton, NJ: Princeton University Press.CrossRefGoogle Scholar
Maskin, Eric, Qian, Yingyi, and Xu, Chenggang. 2000. “Incentives, Information, and Organizational Form.” Review of Economic Studies 67 (2): 359–78.CrossRefGoogle Scholar
Montinola, Gabriella, Qian, Yingyi, and Weingast, Barry R.. 1995. “Federalism, Chinese Style: The Political Basis for Economic Success in China.” World Politics 48 (1): 5081.CrossRefGoogle Scholar
Nathan, Andrew J. 1973. “A Factionalism Model for CCP Politics.” China Quarterly 53: 3466.CrossRefGoogle Scholar
Naughton, Barry. 1995. Growing out of the Plan: Chinese Economic Reform, 1978–1993. New York: Cambridge University Press.CrossRefGoogle Scholar
Oates, Wallace E. 1972. Fiscal Federalism. New York: Harcourt Brace Jovanovich.Google Scholar
O’Brien, Kevin J., and Li, Lianjiang. 2006. Rightful Resistance in Rural China. New York: Cambridge University Press.CrossRefGoogle Scholar
Oi, Jean C. 1992. “Fiscal Reform and the Economic Foundations of Local State Corporatism in China.” World Politics 45 (1): 99126.CrossRefGoogle Scholar
Oi, Jean C. 1999. Rural China Takes Off: Institutional Foundations of Economic Reform. Berkeley: University of California Press.CrossRefGoogle Scholar
Oi, Jean C., Singer Babiarz, Kim, Zhang, Linxiu, Luo, Renfu, and Rozelle, Scott. 2012. “Shifting Fiscal Control to Limit Cadre Power in China's Townships and Villages.” China Quarterly 211: 649–75.CrossRefGoogle Scholar
Oi, Jean C., and Zhao, Shukai. 2007. “Fiscal Crisis in China's Township: Causes and Consequences.” In Grassroots Political Reform in Contemporary China, eds. Perry, E. and Goldman, M.. Cambridge, MA: Harvard University Press. 7596.CrossRefGoogle Scholar
Oksenberg, Michel, and Tong, James. 1991. “The Evolution of Central–Provincial Fiscal Relations in China, 1971–1984: The Formal System.” China Quarterly 125: 132.CrossRefGoogle Scholar
Ong, Lynette H. 2012. “Fiscal Federalism and Soft Budget Constraints: The Case of China.” International Political Science Review 33 (4): 455–74.CrossRefGoogle Scholar
Park, Albert, Rozelle, Scott, Wong, Christine, and Ren, Changqing. 1996. “Distributional Consequences of Reforming Local Public Finance in China.” China Quarterly 147: 751–78.CrossRefGoogle Scholar
Qian, Yingyi, and Roland, Gérard. 1998. “Federalism and the Soft Budget Constraint.” American Economic Review 88 (5): 1143–62.Google Scholar
Qian, Yingyi, Roland, Gérard, and Xu, Chenggang. 2006. “Coordination and Experimentation in M-Form and U-Form Organizations.” Journal of Political Economy 114 (2): 366402.CrossRefGoogle Scholar
Qian, Yingyi, and Xu, Chenggang. 1993. “Why China's Economic Reforms Differ: The M-Form Hierarchy and Entry/Expansion of the Non-state Sector.” Economics of Transition 1 (2): 135–70.CrossRefGoogle Scholar
Ross, Michael L. 2001. “Does Oil Hinder Democracy?.” World Politics 53 (3): 325–61.CrossRefGoogle Scholar
Shih, Victor, Adolph, Christopher, and Liu, Mingxing. 2012. “Getting Ahead in the Communist Party: Explaining the Advancement of Central Committee Members in China.” American Political Science Review 106 (1): 166–87.CrossRefGoogle Scholar
Shirk, Susan L. 1993. The Political Logic of Economic Reform in China. Berkeley: University of California Press.CrossRefGoogle Scholar
Simmons, Beth A., and Elkins, Zachary. 2004. “The Globalization of Liberalization: Policy Diffusion in the International Political Economy.” American Political Science Review 98 (1): 171–89.CrossRefGoogle Scholar
Tian, Yi, and Zhao, Rui. 2008. Taxiang Zhi Shui (The Taxes of a County). Beijing: China CITIC Press.Google Scholar
Tsui, Kai-yuen, and Wang, Youqiang. 2004. “Between Separate Stoves and a Single Menu: Fiscal Decentralization in China.” China Quarterly 177: 7190.CrossRefGoogle Scholar
Wang, Shaoguang. 1997. “China's 1994 Fiscal Reform: An Initial Assessment.” Asian Survey 37 (9): 801–17.CrossRefGoogle Scholar
Wang, Shaoguang, and Hu, An’gang. 2001. The Chinese Economy in Crisis: State Capacity and Tax Reform. Armonk, NY: M. E. Sharpe.Google Scholar
Wawro, Gregory. 2002. “Estimating Dynamic Panel Data Models in Political Science.” Political Analysis 10 (1): 2548.CrossRefGoogle Scholar
Wibbels, Erik, and Arce, Moisés. 2003. “Globalization, Taxation, and Burden-shifting in Latin America.” International Organization 57 (1): 111–36.CrossRefGoogle Scholar
Wong, Christine, and Bird, Richard. 2008. “Fiscal System in China: A Work in Progress.” In China's Great Economic Transformation, ed. Brandt, Loren. Cambridge: Cambridge University Press. 429–466.CrossRefGoogle Scholar
World Bank. 2002. China: National Development and Sub-National Finance: A Review of Provincial Expenditure. Washington, DC: World Bank.Google Scholar
Wu, Yi. 2007. Xiaozhen xuanxiao: yige xiangzhen zhengzhi yunzuo de yanyi yu chanshi (Noises in a Small Township: The Evolution and Interpretation of Political Processes in an Agricultural Township). Beijing: Sanlian Shudian.Google Scholar
Xu, Chenggang. 2011. “The Fundamental Institutions of China's Reforms and Development.” Journal of Economic Literature 49 (4): 10761151.CrossRefGoogle Scholar
Yang, Dali L. 2004. Remaking the Chinese Leviathan: Market Transition and the Politics of Governance in China. Stanford, CA: Stanford University Press.CrossRefGoogle Scholar
Zhan, Jing Vivian. 2013. “Strategy for Fiscal Survival? Analysis of Local Extra-budgetary Finance in China.” Journal of Contemporary China 22 (80): 185203.CrossRefGoogle Scholar
Zhong, Yang. 2003. Local Government and Politics in China: Challenges from Below. Armonk, NY: M. E. Sharpe.Google Scholar
Zhou, Xueguang. 2010. “The Institutional Logic of Collusion among Local Governments in China.” Modern China 36 (1): 4778.CrossRefGoogle Scholar
Supplementary material: PDF

Lü and Landry Supplementary Material

Appendix

Download Lü and Landry Supplementary Material(PDF)
PDF 97.5 KB