Promotion Incentive: Corruption and Its Implications on Local Fiscal Cycles in China

Abstract

This paper conducts an empirical test of political budget cycles using Chinese provincial-level data from 1990 to 2006. We find that the growth rate of infrastructure expenditure significantly reduces, while that of administration expenditure increases during the years in which the National Congress of the Communist Party (NCCP) takes place. Our study shows that in addition to economic performance, there is another incentive factor of local political leaders in China---being clean (or staying away from corruption). Our data suggests that both factors are crucial to provincial leaders’ promotion, which in turn drives political budget cycles.