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

Published online by Cambridge University Press:  18 July 2014

XIAOBO LÜ  and
PIERRE F. LANDRY
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 ([email protected]).
Pierre Landry is Associate Professor of Political Science, University of Pittsburgh, 4600 Wesley W. Posvar Hall, Pittsburgh, PA 15260 ([email protected]).
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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
Information
American Political Science Review , Volume 108 , Issue 3 , August 2014 , pp. 706 - 722
Copyright
Copyright © American Political Science Association 2014 

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