Business experience and local government size: evidence from China

Abstract

This article documents the determinants of local government size corresponding with the work experience of political leader. Utilizing the city level data on the size of government and political officials in China, government size is found to be negatively associated with local political leaders’ work experience in business. This relationship holds more firmly in poor cities or those with stronger fiscal decentralization. Moreover, we find evidence supporting that both fiscal decentralization and the size of public funded system contribute to the expansion of government.

Keywords:

• Government size
• business experience
• local government leaders

Acknowledgement

We would like to thank the anonymous referee and Leong Liew (Editor-in-Chief) for helpful comments and suggestions. Part of this work and idea took place whilst Luo was studying at the University of Cambridge and Luo is grateful for their generous support and hospitality, and insightful advices from Toke Aidt (mentor).

Disclosure statement

No potential conflict of interest was reported by the author.

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Notes

1 The data are extracted from the China Statistical Yearbook, constructed as central government level.

2 One may concern that both in administrative and fiscal terms, the scope of ‘government’ is different in China as compared with the Western contexts. In China, ‘government’ refers not only to the executive, administrative branch. It also includes (also has to pay for) the communist party apparatus, the eight ‘democratic’ parties, the People’s Congress and the Chinese People’s Political Consultative Conference, etc. A further problem is that these lines of expenditure are often mixed together on the government’s books, which makes it difficult to single out the data for expenses of the executive branch of the government. Conversely, in terms of government function, institutions other than in the executive branch also carry out certain administrative functions and should be included in the scope of ‘government’ in China. Note that, however, this article focuses on the impact on government size, measured by the ratio of local budgetary government expenditure to the GDP of each city, following Wu and Lin (2012). More importantly, this article also utilizes an alternative measure of government size (see Razin, Sadka, and Swagel 2002; Shelton 2008; Pickering and Rajput 2018), measured by the ratio of total tax revenue to GDP, for robustness checks.

3 Recently, a number of articles (i.e. Feng, Luo, and Wang, 2020; Luo and Zhang, 2020; Qin, Luo, and Wang, 2021) further work on the effect of China’s local political turnover or policy uncertainty on firm investment, while Zhang, Luo, and Zhu (2021) emphasize the importance of local leaders during the prevention and control of COVID-19 in China.

4 Data on both city government revenue as a percentage of GDP and city government expenditure as a percentage of GDP are obtained from the China City Statistical Yearbook.

5 By using a longitudinal dataset at Chinese city-level from 2001 to 2010, this article examines the determinants of local government size by capitalizing on both volatility over time and cross-sectional variations. The volatility over time period makes it possible to handle the endogeneity issue. The cross-city variations in the data potentially examine the role of local heterogeneity during the period of expansion of local government.

6 The measure of work experience in business used in this article refers to whether the official has business management experience, rather than working in economic regulation. Note that this article aims to analyze whether the professional background of a head of government matters for the promotion of market-liberalizing reforms following Dreher et al. (2009). For simplicity, throughout the article, work experience in business refers to the professional background of local political leader.

7 In practice, in terms of mayor we use a dummy variable that equals one if the mayor previously served as a deputy mayor in the same city and zero otherwise; in terms of municipal party secretary we use a dummy variable that equals one if the municipal party secretary previously served as a mayor in the same city and zero otherwise.

8 Data on the characteristics of municipal party secretary and mayor are collected by the author from the resumes of local officials on the official websites of local governments.

9 The corresponding deator indices are obtained from the statistical yearbooks of individual provinces where the cities are located.

10 We obtain essentially similar results when the sample is divided according to the size of the city (such as the median value of total population) – this relationship holds more strongly in small cities.

11 Data on the ratio of non-agricultural population to total population are also derived from the yearbooks of individual provinces where the cities are located.

Additional information

Notes on contributors

Weijie Luo

Dr. Weijie Luo is an assistant professor in economics at the Central University of Finance and Economics (CUFE). Prior to joining CUFE, Dr. Luo was a visiting researcher in economics at the University of Cambridge, and worked as an associate lecturer in economics at the University of York, where he completed his PhD in economics. His research interests are in macroeconomics, political economy and economic policy. His research work has been published (or accepted for publication) in journals such as Economics Letters, Journal of the Asia Pacific Economy, Scottish Journal of Political Economy, etc. He is currently serving as an anonymous referee in journals such as Bulletin of Economic Research, Journal of Applied Economics, Journal of Health Psychology, Public Finance Review, etc.