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

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 t...

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Bibliographic Details
Published in:The American political science review 2014-08, Vol.108 (3), p.706-722
Main Authors: LÜ, XIAOBO, LANDRY, PIERRE F.
Format: Article
Language:English
Subjects:
Authoritarianism
China
China (People's Republic)
Competition
Correlation
Counties
County governments
Economic competition
Economic development
Endowments
Ethnic minorities
Evidence
Fear
Fiscal Capacity
GDP
Government (Administrative Body)
Gross Domestic Product
Incentives
Interdependence
Jurisdiction
Local government
Logical Thinking
Loyalty
Minorities
Money
Organizational Change
Peer Influence
Peoples Republic of China
Political appointments
Political science
Politics
Prefectures
Principals
Provincial government
Racial Relations
Revenue
Revenue sharing
Spatial analysis
Stability
Tax rates
Tax reform
Tax revenue
Taxation
Taxes
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Summary: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.
ISSN:0003-0554
1537-5943
DOI:10.1017/S0003055414000252