2.1. Representation and redistribution under democracy

Genuine political representation seems only feasible in democratic states. Not surprisingly, most existing research on the redistributive consequences of territorial representation focuses on democracies. A fundamental concern is how unequal political representation at a higher-level legislative forum might engender unequal shares of resources for different constituent geographic units.Footnote ² Drawing on theories of legislative bargaining, for instance, Knight (Reference Knight2008) argues that units overrepresented on a per capita basis are more likely to benefit from agenda-setting powers and are cheaper, more attractive partners to be included in the ‘winning coalitions’ of legislative deal-making. Thus, politically overrepresented member regions often receive more economic resources from higher-level legislative bodies.

Empirical evidence has mostly come from the US Senate, where the equal allocation of two members to each state has created notorious overrepresentation by small states (on a per capita basis). For example, Atlas et al. (Reference Atlas, Gilligan, Hendershott and Zupan1995) find that unequal per capita representation in the US Senate resulted in unequal per capita federal net spending during the 1972–1990 period. Similarly, Lee (Reference Lee2000) shows that less populous states enjoying greater representation in the Senate received disproportionately larger shares of federal surface transportation funds on a per capita basis in the 1990s.Footnote ³ Evidence of disproportionate resource dispensation to overrepresented constituent regions is not confined to American federal politics or the sole settings of the United States.

Indeed, Ansolabehere et al. (Reference Ansolabehere, Gerber and Snyder2002) have demonstrated that American counties with more seats per capita in state legislatures also received higher per capita monetary transfers from the states. Counties with reduced legislative seats through court-ordered redistricting in the 1960s consequently received declining state money. Meanwhile, for Horiuchi and Saito (Reference Horiuchi and Saito2003), Japanese municipalities with more seats per capita in the Japanese Diet witnessed greater inflows, on a per capita basis, of central government subsidies and, following the 1994 electoral reform, those losing Diet seats also saw dwindling central inward transfers.

Even in quasi-federations composed of sovereign states, a seat at the table can matter if voting by members is required for policymaking. Smaller member states of the European Union that were overrepresented in the European Parliament and the Council of Ministers often received greater EU fiscal transfers during 1977–1999 (Rodden, Reference Rodden2002). This echoes Isenman's (Reference Isenman1976) earlier detection of a similar ‘bias’ in allocation of international aid, largely because smaller states enjoy equal voting power and can be more effectively, in terms of per capita assistance, ‘bought off’ at an international voting forum – the United Nations General Assembly. In short, overrepresentation at a democratic legislature or a supranational arena where decision-making involves voting translates into more inward monetary transfers for constituent units.

2.2. Power-sharing, representation, and redistribution under dictatorship

Much less is known about political representation in nondemocratic states where meaningful legislative voting hardly exists. The dearth of scholarly attention is understandable. Authoritarian representation is an oxymoron; establishment of rubber-stamping ‘representative’ institutions by autocrats rarely goes beyond symbolic window-dressing. A growing body of new scholarship on the political economy of dictatorship, however, has started to question this long-held view on the nature of authoritarian political institutions.

One strand of research revolves around the role of authoritarian power-sharing via pseudo-democratic political institutions in dictatorship such as parliaments. A major thesis highlights how autocrats could set up nominal legislatures for the very purpose of stabilizing and prolonging their rule. While diluting the absolute power of the autocrats, such authoritarian power-sharing via limited political representation might ease the co-optation of the opposition. For instance, Gandhi and Przeworski (Reference Gandhi and Przeworski2007) conjecture that some dictators allow the presence of legislatures to tame potential opposition from the civil society. Likewise, Wright (Reference Wright2008) argues that dictators install legislative institutions either as a credible constraint on themselves to attract investment or as an appeasement tool to neutralize the opposition. Similarly, Malesky et al. (Reference Malesky, Schuler and Tran2012) have shown how the national parliament in contemporary Vietnam largely serves the interests of the ruling communist party. Scholarship along these lines, however, rarely probes the nature or consequences of the territorial dimension of representation in an authoritarian legislature.Footnote ⁴

Meanwhile, a related but distinct thrust of research has focused on power-sharing and representation within one type of dictatorship – single-party authoritarian regimes. There are two main variants, both with regional redistributive implications. The first assumes that the leaders under single-party authoritarianism are not as monolithic as commonly perceived. In fact, the most lethal threats to autocrats arise from within due to the fundamental problem of uncertainty and prevalence of violence as the final arbiter of conflicts in the absence of institutionalized rules under authoritarianism (Svolik, Reference Svolik2009). Internal power-sharing at a collective policy-making forum within the single-ruling party such as its Politburo might help the reigning autocrats secure the support of ambitious allies (but potential rivals) within the regime, some of whom work at the subnational level. This could improve reciprocal monitoring and increase mutual assurances among the top autocrats and their colleagues, thus help maintain regime stability and preserve their autocratic rule (Gandhi and Przeworski, Reference Gandhi and Przeworski2006; Svolik, Reference Svolik2012).

Because colleagues offered Politburo seats essentially constitute a crucial bloc of the ‘Selectorate’ deciding the fate of reigning autocrats (Shirk, Reference Shirk1993), they might be rewarded with a variety of policy pork or rents by the autocrat, if only as a bribe in exchange for their continuing loyalty (Bueno de Mesquita et al., Reference Bueno de Mesquita, Smith, Morrow and Siverson2003). Under this logic, regional governments overseen by sitting ruling-party Politburo members might be able to get away with a less cumbersome fiscal burden toward the central government, or even be lavished with larger central fiscal assistance for their local jurisdictions, thus yielding more resources at their own disposal.

The second variant of this body of research assumes a relatively unified national authoritarian leadership in single-party states (Geddes, Reference Geddes1999), especially when it comes to the common need to confront challenges arising along the territorial dimension from the regions beyond the national capital, as dictators from Qaddafi of Libya to Assad of Syria must have become painfully aware of. This should be of greater relevance to authoritarian states governing a vast territory like China (Chung, Reference Chung2016). It suggests that power-sharing and representation at the collective decision-making institutions such as the Politburo within the single-ruling party by including regionally-based officials enables the autocrats who run the central government to pursue territorially targeted control in order to preserve their national rule.

Employing their personnel control over the regional government leadership – the nomenklatura powers afforded by the single ruling party (Harasymiw, Reference Harasymiw1969), the national autocrats can send trusted allies that are seated at the ruling-party Politburo to govern selected subnational regions (Sheng, Reference Sheng2009). Inducted into the national core leadership of the regime, regionally-based leaders with a ruling-party Politburo membership should have more ‘encompassing’ interests in the success of, and greater incentives to comply with, the policy priorities of the national autocrats than their counterparts who are not Politburo members (Huang, Reference Huang2002).

In the fiscal realm, such a greater inclination for policy compliance by regional officials who are sitting Politburo members might lower the ‘transaction costs’ (Levi, Reference Levi1988) of central government revenue extraction efforts from the better ‘represented’ regions they lead. If such authoritarian power-sharing aims at tighter control of the selected regions, rather than at simply appeasing allies or disgruntled rivals of the autocrat, subnational regions overseen by close lieutenants of the national autocrats and thus enjoying greater ‘political representation’ at a national-level policymaking forum might not necessarily be rewarded with greater inflows of fiscal resources from the central government.

In sum, little research exists on the redistributive consequences of authoritarian power-sharing and political representation along the territorial dimension in single-party autocracies. The logic of authoritarian internal power-sharing suggests that offering a Politburo seat for regional leaders to buy off the support and loyalty of political allies but potential rivals of the national autocrats might hinder central fiscal extraction from below, but ease inflows of fiscal assistance for the regions. An alternative territorial logic on authoritarian power-sharing, in contrast, posits that the assignment of the ruling-party Politburo members could facilitate fiscal resource extraction by the central government without necessary fiscal compensation for the regions. To the best of my knowledge, no systematic work has explicitly tested the effect of ruling-party Politburo membership for regional officials on the extent of central fiscal extraction from and fiscal compensation for the subnational regions in an authoritarian setting. I try to start tackling this scholarly lacuna by turning to the case of contemporary China.

3.1. The post-1978 context

Communist rule in China in the reform-era is perhaps best characterized as a single-party regime (Geddes, Reference Geddes1999). Until the most recent power centralization under President Xi since late 2012 (Economy, Reference Economy2014; Li Reference Li2016), post-Mao China had witnessed the gradual emergence of a collective leadership and the increasing institutionalization of norms of retirement and peaceful and orderly leadership succession within the CCP (Manion, Reference Manion1993; Wang and Vangeli, Reference Wang and Vangeli2016).Footnote ⁵ More important for our purposes, the national leaders of the CCP are politically dominant vis-à-vis the provincial leaders (Lieberthal, Reference Lieberthal2003). Above all, the national leaders have exercised the nomenklatura powers and monopolized the personnel appointments over the provincial leaders, via ruling party institutions such as the central Department of Organization (Huang, Reference Huang1996; Landry, Reference Landry2008). Combined with their predominance in the ruling-party Politburo, such personnel powers have enabled the CCP national leaders to send CCP Politburo members to rule the provinces.

The Politburo, composed of around two-dozen members of the CCP Central Committee (CC), is the sort of ‘collegial’ forum within the ruling party responsible for the country's major domestic and foreign policymaking. Its members constitute the national core leadership of the party and government. The Chinese national leaders, who run the CCP national offices and the central government and command the military, dominate the Politburo (Shambaugh, Reference Shambaugh2003). Only they join the smaller and even more exclusive Standing Committee of the Politburo at the apex of political power in China.Footnote ⁶ The national leaders have always occupied the overwhelming majority of Politburo seats in this period (Sheng, Reference Sheng2005), over 70% in any year during 1978–2017. In late 2017, for example, national leaders occupied 19 out of 25 seats (76%) in the newly elected Politburo of 19th CC of the CCP. The recent decades also witnessed a rising share, from nil during 1981–1984 to 24% of Politburo membership for provincial officials as of early 2018.Footnote ⁷

Meanwhile, provincial governments in China do not have the independent authority to define their own tax base or set the tax rates in their own jurisdictions, but they have played an important role in the fiscal flows between the provinces and the central government. They were directly involved with the center's revenue collection in the provinces before the 1994 fiscal reform that established the center's own tax collection agencies nationwide (Wong et al., Reference Wong, Heady and Woo1995).Footnote ⁸ Since then, such direct extraction by the provincial governments on behalf of the center has diminished, but they still influence the collection of central taxes within their jurisdictions (Yang and Jiao, Reference Yang and Jiao2001).Footnote ⁹ More important, the provincial governments have helped determine the terms of their formal fiscal obligations to the center and the amount of central fiscal compensation for the provinces in the first place.

Under pre-1994 fiscal contracting, the provincial governments often sought to bargain with the national leaders over the amount of revenues they could retain in the provinces in their fiscal contracts with the central government (Jin et al., Reference Jin, Qian and Weingast2005). The fiscal reform of 1994 to institutionalize central-provincial fiscal ties and infuse more certainty in expectations over how much the central government can take from the provinces and how much the provinces need to deliver to the central coffer has not obviated such attempts at influence from below. The provincial governments have continued to haggle with the center over the amount of provincial budgetary remittances to the center or the size of central fiscal subsidies to the provinces (Chang Reference Chang1999; Zhao Reference Zhao2003). In short, the provincial governments still play a key role in central-provincial fiscal flows after the 1994 fiscal reform.

Existing empirical research has examined how provincial presence at the Politburo could affect the flows of central fiscal resources into, rather than resources out of the provinces in post-1994 China. Using a dummy variable on whether a sitting Politburo member happened to serve in a province as a proxy for provincial lobbying power, Wang (Reference Wang, Liew and Wang2004: 232–234) finds that Politburo membership for provincial officials was not a significant predictor of central subsidies for the provinces in 1998. Likewise, Fan and Zhang (Reference Fan and Zhang2011) do not detect any significant effect of Politburo membership for provincial officials on central fiscal subsidies to the provinces during the period of 1999–2009. In this study, I take advantage of a time-series cross-sectional dataset on annual provincial presence at the CCP Politburo and yearly central-provincial formal fiscal flows during the post-1994 period to test how Politburo membership for provincial leaders affected central fiscal extraction from, and central fiscal subsidies into the provinces in China.

3.2. Data

The unit of analysis is province/year. Relatively consistent provincial-level budgetary data have become available since the 1994 fiscal reform. I use two separate dependent variables. Remittance is the annual real per capita budgetary remittances (at constant 1977 RMB) to the central government from each province during the period of 1995–2004. Subsidy is the annual real per capita central subsidies for each province in the same period.Footnote ¹⁰ The sample only extends to 2004 as China's provincial-level economic data – such as gross-domestic product (GDP), a crucial control variable – have been reported with new statistical standards since 2005, making them potentially inconsistent with those from earlier years.Footnote ¹¹

Moreover, the 1995–2004 period provides an especially interesting empirical setting for testing the authoritarian power-sharing thesis at the subnational level, and in particular, the effect of CCP Politburo membership for provincial officials on central-provincial fiscal flows in China. These years had largely been presided over by Jiang Zemin who as the CCP party chief had pursued runaway economic growth and liberalization, often at the expense of yawning regional inequality among the provinces. The Chinese central government only started seriously addressing this via greater redistributive efforts in favor of inland provinces that had not been faring as well and other previously neglected social strata such as the peasants in an effort to build a ‘harmonious society’ via ‘scientific development’ under Jiang's successor Hu Jintao (Lam, Reference Lam2006; Hung Reference Hung2015). Although Hu formally took over as the party chief in late 2002, Jiang did not retire as the military chief and give up the most important political power until September of 2004.Footnote ¹²

Meanwhile, Jiang Zemin has also been known for his putative ‘regional favoritism’ by promoting former lieutenants from Shanghai where he had worked in the late 1980s, the so-called ‘Shanghai gang’ (Li, Reference Li2002) and might have subsequently lavished localities like Shanghai with preferential fiscal policies. During these years, in other words, the Chinese central government could have been especially susceptible to fiscal lobbying efforts from subnational regions overseen by officials in Jiang's power-sharing orbit. Focusing on this period thus can help us mitigate problems in empirical estimations arising from possible structural policy shifts following changes of China's national leadership while providing the empirical setting of a ‘most likely case’ (Gerring, Reference Gerring2007) linking authoritarian power-sharing to fiscal rewards and compensation at the regional level.

There are two additional advantages in using the fiscal flow data. First, unlike data on marginal revenue retention rates in fiscal contracts between the Chinese central and provincial governments for the pre-1994 years (Jin et al., Reference Jin, Qian and Weingast2005), or data on local government budgetary revenues (Lü and Landry, Reference Lü and Landry2014), data used in this study directly measure the actual amount of fiscal flows between the central government and the provinces, consistent with the more direct measures of resource redistribution in other settings.

Second, there is substantial variation in how much the provinces contributed to and received from the central fiscal coffers, both across the provinces and over the years. In Figure 1, I present summary data on the dependent variable for the sample period of 1995–2004. For instance, on average, Shanghai was the largest contributor, sending in about 232 RMB per capita each year; Gansu had contributed the least to the central government, remitting on average barely one RMB per capita annually. On the receiving end, Tibet was the most subsidized province, taking in over 686 RMB per capita on an annual basis while Jiangsu was only able to get less than 19 RMB per capita a year on average. There was also considerable cross-year variation for the provinces. It is such spatial and temporal variation that I seek to explain in this study.

Source: Data on subsidies and remittances are from Zhongguo Caizheng Nianjian Bianji Weiyuanhui (1996, 1997–2004, 2005); data on tax rebates are from Caizhengbu Difangsi (Reference Caizhengbu1996, Reference Caizhengbu1998), Caizhengbu Guokusi and Caizhengbu Yusuansi (Reference Caizhengbu2002, Reference Caizhengbu2003, Reference Caizhengbu2005, Reference Caizhengbu2006), and Caizhengbu Yusuansi (Reference Caizhengbu1998, Reference Caizhengbu1999, Reference Caizhengbu2001a, Reference Caizhengbu2001b).Note: Data in Panel (A) refer to real annual provincial per capita budgetary revenue remittances to the central government (constant 1977 RMB); data in Panel (B) refer to real annual provincial per capita budgetary subsidies (excluding formula-based tax rebates) from the central government.

Figure 1. Data on the dependent variable.

As noted, the fiscal reform of 1994 to institutionalize intergovernmental revenue sharing has failed to remove the element of arbitrariness in the central-provincial fiscal ties. The sum of remittances from and central subsidies for each province has remained subject to negotiations in the post-1994 years (Chang, Reference Chang1999; Zhao, Reference Zhao2003). Ceteris paribus, a higher Remittance value indicates more provincial budgetary revenue contributions to (a larger extent of formal fiscal extraction from the provinces by) the central government. Likewise, a higher value of Subsidy indicates greater fiscal compensation by the central government for the provinces. Ideally, one would want to examine both the formal and informal aspects of central-provincial fiscal flows, but systematic information on the latter is scarce. I thus focus on the formal fiscal flows.

In any year, only the top official, the yibashou (number one official, the provincial party secretary with the final say over policy matters in the province) from a few provinces was seated at the CCP Politburo. What distinguishes the provinces most is not how much Politburo presence a province had in a year, but whether it was at all represented at the Politburo. For my analysis, I mainly employ a dummy variable indicating whether a Politburo member ever served in a province during a year as the independent variable, denoted as Politburo. For robustness checks, I use Politburo Share, the percentage share of Politburo membership for incumbent officials for a province in a year, calculated on the basis of monthly data on personnel movements. The data on the independent variable are summarized in Figure 2. They cover 1994–2004 due to the need for lagging the independent variable in later empirical estimations (more below).

Source: Sheng (Reference Sheng2009, 80).Note: Data refer to total number of years during 1994–2004 in which a CCP Politburo member served in a province. The provinces/years ruled by a Politburo member were Beijing/1994–2004, Guangdong/1994–2004, Henan/1997–1998, Hubei/2002–2004, Jiangsu/2002, Shandong/1994, 1997–2002, Shanghai/1994–2004, Sichuan/2002, Tianjin/2002–2004, Xinjiang/2002–2004, and Zhejiang/2002.

Figure 2. Data on the independent variable.

3.3. Hypotheses

The logic of authoritarian internal power-sharing suggests that China's national leaders might allow provincial officials seated at the Politburo to keep more fiscal resources in their local jurisdictions or send more central fiscal assistance to the provinces overseen by these officials. Politburo members working at the provincial level are often powerful autocrats in their own right within the regime, often with close ties to patrons at the national level not necessarily holding formal jobs (Unger and Dittmer, Reference Unger and Dittmer2002). They could be either close allies or potential rivals (or both) of the reigning CCP national leaders whose loyalty and support will be crucial for regime stability and survival. Indeed, when occasionally Politburo members based in the provinces – Chen Xitong of Beijing in the 1990s, Chen Liangyu of Shanghai in the 2000s, and Bo Xilai in 2012 – did become openly unruly and had to be removed on charges of corruption, it could undermine the legitimacy of the CCP and threaten the rule of the CCP national leaders (Li, Reference Li2016).

Access to more public fiscal resources not only could help these officials provide more public goods in the localities and build a stronger performance record for future promotions to the national-level offices. It could also engender immense opportunities for embezzlement and other rents for these officials as well as their families and cronies, often essential to sustaining political loyalty in a dictatorship (Bueno de Mesquita et al., Reference Bueno de Mesquita, Smith, Morrow and Siverson2003). To woo their loyalty and support, therefore, China's national leaders might be interested in lavishing the provinces led by these Politburo members with more fiscal resources via providing greater fiscal assistance or imposing on them less onerous fiscal obligations toward the central government.

Meanwhile, the mounting fiscal woes for the provinces in this period should also increase the incentives of all provinces to lobby the central government for fiscal assistance. As the 1994 fiscal reform drastically centralized tax collection in China, dwindling revenue shares but soaring spending mandates have constrained the fiscal capacity of all provincial governments increasingly dependent on central fiscal subsidies (Landry, Reference Landry2008). Indeed, central fiscal subsidies financed on average nearly 48% of local (provincial and below) government budgetary spending during 1994–2004, compared with only 23% during 1990–1993 (Zhongguo Caizheng Nianjian Bianji Weiyuanhui, 2005: 361–365). Provincial party chiefs who were Politburo members should be more effective at negotiating with the central government to keep more local fiscal resources in their own hands or bring in more central fiscal resources. I thus hypothesize:

Politburo membership for provincial officials should thus be associated with lower provincial revenue remittances to, or greater central fiscal assistances from the central government. We expect a negative sign for the coefficient of the independent variable if Remittance is the dependent variable and a positive sign when Subsidy is the dependent variable in the empirical analysis.

Under an alternative territorial logic of authoritarian power-sharing, in contrast, regionally selective Politburo membership for provincial officials could facilitate fiscal extraction from the targeted provinces without necessarily easing greater inflows of central fiscal resources. Politburo members based in the provinces tend to regard themselves as part of the national core leadership (Huang, Reference Huang2002). Indeed, provincial party secretaries who were Politburo members were much more likely to be promoted to higher offices at the national level than those who were not – 83% of the Politburo members vs 14% of the non-Politburo members during 1978–2005 (Sheng, Reference Sheng2010). The future of these officials seems to lie more with the national leaders, than with the localities where they were serving. Compared with provincial leaders who are not Politburo members, ceteris paribus, these officials are more sympathetic with the policy outlook of, and have greater incentives to comply with the policy preferences of, the CCP national leaders.

After a secular decline in revenue shares going to the central government, the CCP national leaders implemented the 1994 fiscal reform in order to centralize revenue collection, and to help keep the country together and themselves in power (Naughton and Yang, Reference Naughton and Yang2004; Chung, Reference Chung2016). Arguably, the relative success of such fiscal centralization, at least in the eyes of the central government,Footnote ¹³ had paved the way for the later regional ‘re-balancing’ favoring the inland provinces faring less well during the reform era (Hung, Reference Hung2015). Remitting more revenues to the central government enhances the fiscal standing of and clearly is in the interest of the central government. If one key goal of CCP's national leadership in dispatching Politburo members to rule selected provinces is to help induce policy compliance from below (Sheng, Reference Sheng2009), Politburo members working in the provinces should perhaps be more conscientious in fulfilling the task entrusted to them by their senior colleagues in the Politburo (Standing Committee). They should work harder for ensuring the delivery of provincial budgetary revenue remittances to the central fiscal coffers. As Politburo members, even Chen Xitong, Chen Liangyu, and Bo Xilai did not seem to have slacked in remitting revenues to the central government.Footnote ¹⁴ They might also bargain less assiduously on behalf of the provinces over the terms of their formal fiscal obligations to the center or the amount of fiscal compensation from the central government. I thus hypothesize:

Politburo membership for provincial officials should be positively correlated with provincial budgetary revenue remittances to the central government and not related to central fiscal assistance to the provinces. We expect a positive sign for the coefficient of the independent variable when Remittance is the dependent variable, and no significant relationship between the independent variable and Subsidy in empirical estimations.

4.1. Model specifications and estimation issues

Due to the ‘level’ data of the dependent variable with possible unit root problems and the time-series cross-section nature of the dataset, I use a panel error correction model that regresses the first-differenced dependent variable on both the lagged and the first-differenced independent variable, as well as a lagged dependent variable (De Boef and Keele, Reference De Boef and Keele2008).Footnote ¹⁵ An error correction model is also attractive as it lends itself easily to the testing of both the long-term and short-term effects of slowly-changing independent variables (Beck and Katz, Reference Beck and Katz2011) such as ours – Politburo membership for provincial officials. The empirical model assumes the following form:

(1)$$\eqalign{\Delta Fiscal\;Flows_{i,t} = &\,\beta _0Politburo_{i,t-1} + \beta _1\Delta Politburo_{i,t} + \beta _2Fiscal\;Flows_{i,t-1} \cr & + \beta _3Control\;Variables_{i,t-1} + \beta _4\Delta Control\;Variables_{i,t} + \alpha _i + \lambda _t + \varepsilon _{i,t}} $$

Please note that I estimate two dependent variables – Remittance and Subsidy – separately. In Equation (1), therefore, ΔFiscal Flows _i,t is the first-differenced dependent variable for province i during year t, denoting the annual first-difference changes in provincial per capita remittances to the central government (ΔRemittance _i,t) and in central fiscal subsidies to the provinces (ΔSubsidy _i,t), respectively. Politburo _i,t−1 and ΔPolitburo _i,t are the lagged (by 1 year) and first-differenced independent variable, with β ₀ and β ₁ as their respective coefficient vectors. Fiscal Flows _i,t−1 is the lagged dependent variable – Remittance _i,t−1 and Subsidy _i,t−1 – respectively, with a coefficient vector of β ₂.

Many other provincial-level factors could also affect central-provincial fiscal flows and need to be controlled for during estimation. I include exposure to the global markets (Exports, the percentage share of exports in provincial GDP), wealth (Per Capita GDP, the natural log of provincial per capita GDP at constant 1977 RMB), population size (Population, the percentage share of provincial population in national total), existing fiscal health (Surplus, the difference between per capita local budgetary revenues and per capita budgetary spending at constant 1977 RMB), and urbanization (Urbanization, the percentage share of urban employment in total provincial employment).Footnote ¹⁶ I want to control for whether the more export-oriented, richer, larger, fiscally healthier, and more urbanized provinces were subject to different fiscal extraction or compensation by the central government.

Building on the scholarship on factionalism in Chinese elite politics, Shih (Reference Shih2008) argues that provincial officials boasting close personal ties to the head of the CCP or Deng Xiaoping (until his death in 1997) received more favorable bank loan polices from the central government during this era. Such ties might also help the provinces reduce their fiscal burdens and increase central fiscal inflows. To explore this possibility, I add a dummy variable (Connections), with an expected negative sign for the coefficient for the analysis of remittances and a positive sign for the subsidy estimations.Footnote ¹⁷ I also follow Zheng et al. (Reference Zheng, Li, Song and Yu2013) to add a spatial lag of the dependent variable (Neighbors), calculated as the average remittances or subsidies for all provinces bordering province i in year t,Footnote ¹⁸ to account for possible spillover effects. These seven variables are grouped under the matrix Control Variables; they are included in all the models. β ₃ and β ₄ are the coefficient vectors for their lagged and first-differenced values, respectively. I summarize the variables in Table 1.

Table 1. Summary statistics for variables used

Note: The summary only includes variables used in analysis reported in Tables 2 and 3. All ‘level’ variables are lagged by one year.

In the robustness specifications, I also control for the role of a couple more sample-specific variables that I will introduce as I discuss the results. To capture the unobservable province-specific and year-specific ‘fixed’ effects (Green et al., Reference Green, Kim and Yoon2001), I include a full set of province and year dummy variables, denoted as α _i and λ _t, respectively, in Equation (1). Finally, ε_i,t is an error term. I use ordinary least squares (OLS) regressions with robust standard errors.Footnote ¹⁹

4.2. Empirical results

4.2.1. Provincial remittances to the center

I present the empirical results for provincial remittances and central subsidies in Tables 2 and 3 separately. Model 1 in Table 2 presents the baseline result on remittances. It explains over 59% of the overall variance in changes in provincial per capita remittances to the central government, a remarkable fit given the use of the ‘first-differenced’ values of the dependent variable. Consistent with Hb, both the lagged and first-differenced values of Politburo are positively and significantly associated with the first-differenced Remittance. This suggests that the independent variable exerts positive short-term and long-term effects on the dependent variable. Please note the average provincial population size in this period was about 40 million and the average annual total gross remittances for all provinces combined was about 544 million RMB (1977 constant value).Footnote ²⁰ The short-term effect is captured by the coefficient of ΔPolitburo _i,t in Model 1 (about 1.54). In the short term, other things being equal, sending a Politburo member to lead a province is associated with an immediate increase of about 61.6 (i.e., 40 × 1.54) million RMB (1977 constant value) of provincial remittances to the central government, or over 11% of the average annual total.

To estimate the long-term effect, I first compute the long-run multiplier (LRM) by dividing the coefficient of the lagged independent variable over the negative value of the coefficient of the lagged dependent variable (Kaufman and Segura-Ubiergo, Reference Kaufman and Segura-Ubiergo2001; De Boef and Keele, Reference De Boef and Keele2008). I obtain a value of around 3.8 (i.e.,2.79/ − [ − 0.73]), with an estimated standard error of 1.75, suggesting that the LRM is also statistically significant (the p value being about 0.031).Footnote ²¹ Over the sample period, all else being equal, posting a Politburo member in a province is associated with an increase of over 152 (i.e., 3.8 × 40) million RMB of remittances to the center. Meanwhile, the positive and significant effects of the independent variable are also quite robust.

Table 2. Provincial Politburo representation and fiscal extraction

Note: The dependent variable is ΔRemittance, the annual first difference in provincial per capita budgetary remittances to the central government (1977 RMB) during 1996–2004, and estimated with an error correction model. All ‘level’ independent variables are lagged by 1 year. Model 1 uses a dummy variable to measure presence of provincial officials in the Politburo. Model 2 excludes observations from Shanghai, the biggest contributor to the central coffers in the period. Model 3 uses the annual provincial share (%) of Politburo membership. Model 4 includes a dummy variable that equals 1 if a provincial party secretary was an alternate CC member, and a dummy that equals 1 if the official was not a CC member. Model 5 does not include observations from the five provinces designated as ‘autonomous regions for ethnic minorities.’ All estimations include a full set of province and year dummy variables whose results are omitted. Robust standard errors are reported in parentheses.

***P < 0.01; **P < 0.05; *P < 0.1 (two-tailed tests).

Table 3. Provincial Politburo representation and central fiscal compensation

Note: The dependent variable is ΔSubsidy, the annual first difference in central fiscal subsidies (1977 RMB) to each province during 1996–2004, and estimated with an error correction model. All ‘level’ independent variables are lagged by 1 year. Model 1 uses a dummy variable to measure presence of provincial officials in the Politburo. Model 2 excludes observations from Tibet, the largest recipient of central fiscal subsidies in the period. Model 3 uses the annual provincial share (%) of Politburo membership. Model 4 includes a dummy variable that equals 1 if a provincial party secretary was an alternate CC member, and a dummy that equals 1 if the official was not a CC member. Model 5 does not include observations from the five provinces designated as ‘autonomous regions for ethnic minorities.’ All estimations include a full set of province and year dummy variables whose results are omitted. Robust standard errors are reported in parentheses.

***P < 0.01; **P < 0.05; *P < 0.1 (two-tailed tests).

Model 2 drops all the observations from Shanghai, the largest fiscal contributor in this period to see whether the results are driven by a possible outlier.Footnote ²² In Model 3, I replace the dummy variable with a more precise measure of annual provincial percentage share of Politburo membership as our main independent variable (Sheng, Reference Sheng2005). As we can see, the results concerning provincial presence at the CCP Politburo are broadly consistent with those of Model 1.

Meanwhile, Kung and Chen (Reference Kung and Chen2011) suggest that a major culprit of the great Chinese famine in the 1960s was the over-eagerness of provincial party secretaries who were alternate members of the CCP Central Committee to embrace the policy radicalism of the country's supreme leader Mao Zedong in grain production. One possible reason is that as members of the lowest-ranking CC category, these officials were more likely to be rewarded with further career advancement for policy compliance than other provincial party secretaries who might have already exhausted their promotion potential. To control for the role of these provincial leaders during the post-Mao era, in Model 4 I add two dummy variables. Alternate CC takes on a value of 1 if the provincial party secretary of a province in a year was an alternate CC member, and Non-CC equals 1 if the provincial party secretary was neither a full nor an alternate CC member. Contrary to the findings for the pre-reform years by Kung and Chen (Reference Kung and Chen2011), provincial party secretaries who were alternate CC members did not seem to have overseen larger remittances to the central government than those who were full CC members but not Politburo members (the omitted category). Instead, provinces led by party chiefs who were not CC members of any type (not an alternate or full CC member or a Politburo member) tended to remit more budgetary revenues than those led by the non-Politburo full CC members. These officials could have harbored the greatest incentives to implement central fiscal extraction in their jurisdictions in order to strive for accession to CC membership. Nevertheless, the results for the main independent variable remain largely unchanged.

Finally, in Model 5, I exclude observations from five provincial units that are ‘autonomous regions for ethnic minorities’ – Tibet, Xinjiang, Ningxia, Guangxi, and Inner Mongolia because other scholars have suggested that these regions might be subject to a different logic of fiscal extraction and compensation due to the need to appease ethnic minorities by the central government (Lü and Landry, Reference Lü and Landry2014). Again, in both Models 4 and 5, the coefficients for the lagged and first-differenced Politburo remain positive and significant.

Among the control variables, Per Capita GDP is the most robust predictor of provincial revenue remittance. Both the lagged and first-differenced variable are positively and significantly correlated with the first-differenced Remittance across all models in Table 2. The positive effects of provincial wealth on provincial fiscal contributions to the center, in both the long term and short term, imply the highly redistributive nature of central fiscal extraction in China during this period. It is also interesting to note that positive long-term effect of local fiscal health captured by the lagged Surplus variable. However, its coefficient turns negative and is no longer significant at the conventional levels for Model 5 excluding the ethnic minority regions.

Less certain are the results for other variables. Consistent with Shih (Reference Shih2008), the coefficient of the first-differenced Connections is negative. In the short term, provinces led by officials boasting close personal ties to powerful national patrons might subsequently witness a drop in provincial fiscal contributions to the center. Still, its coefficient is not statistically significant at the conventional levels in any of the models.Footnote ²³ The coefficient for Neighbors, the spatial lag capturing the possible effect of interprovincial competition also fails to achieve statistical significance at the conventional levels. The same can be largely said for the other variables.