Presenter: Prof. Lu Yi, School of Economics and Management,Tsinghua University
Title:Political Connections and Fiscal Transfer
Abstract:
Many countries use fiscal transfers to mitigate spatial economic disparities and promote regional growth. However, the distribution of transfers across regions could be influenced by relationships between regional and central officials. We study whether connections between provincial leaders and ministers shape the allocation of intergovernmental transfers in China, and the welfare implications of such allocation. We find that provinces headed by leaders linked to ministers through past workplace and alumni connections receive significantly more central-to-provincial transfers, in regressions that control for provincial leader fixed effects in which the role of shared background is identified through minister turnover. We then use a general equilibrium model with heterogeneous regions, input-output linkages and costly migration and trade to examine the aggregate welfare and inequality implications of such political-connection-influenced transfer allocation. We find that political connections increase aggregate welfare and output through directing fiscal resources to richer provinces, whose leaders tend to be more politically connected. This comes at the cost of widening regional disparities and is contradictory to the major objective of fiscal transfers of balancing regional development.
Location:New Main Building A622
Time:2022.4.14
