Too many mothers-in-law?

Developing countries with low tax capacity may rely on predation to finance government functions. Government predation, in turn, is often accused of imposing a choking effect on state-owned enterprises (SOEs), contributing to the latter's poor performance. We formalize this choking effect as a...

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Bibliographic Details
Published in:Journal of development economics 2013-11, Vol.105, p.69-76
Main Authors: Cheng, Yuk-Shing, Chung, Kim-Sau
Format: Article
Language:English
Subjects:
China
Decentralization
Developing countries
Government predation
Governmental reform
Management theory
Organizational behaviour
Policy burden
Predation
Public administration
Public enterprise
Public enterprises
Public sector
State-owned enterprises
Studies
Taxes
Transitional economies
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Summary:Developing countries with low tax capacity may rely on predation to finance government functions. Government predation, in turn, is often accused of imposing a choking effect on state-owned enterprises (SOEs), contributing to the latter's poor performance. We formalize this choking effect as a problem of inefficient predation that arises from time inconsistency, and show that having multiple government bodies supervising the same SOE may mitigate this problem. Our theory provides an efficiency rationale for the Chinese style of decentralization before 1978, and challenges the wisdom of China's recent enterprise reform that attempted to consolidate supervisory power.
ISSN:0304-3878
1872-6089
DOI:10.1016/j.jdeveco.2013.07.002