Political incentives and local government spending multiplier: Evidence for Chinese provinces (1978–2016)

Abstract

This paper uses data from Chinese provinces to examine the effects of political incentives of provincial leaders on local government spending multipliers over the post-economic-reform period. The estimation based on the local projection method provides three novel findings. Firstly, the estimated cumulative relative government spending multiplier is well above unity, and it is greater in the period after 1994 compared with before 1994. Secondly, the political incentives of provincial leaders augment the local government spending multipliers, and the effects are highly significant after 1994. Thirdly, the economic boom strengthens the augmenting effects of political incentives after 1994.