Subsidies for Sale: Post-government Career Concerns, Revolving-Door Channels, and Public Resource

Abstract

While the existing literature focuses on how revolving-door officials deliver favorable government treatment to firms after leaving public office, this paper shows that public officials distort public resource allocation for private-sector job opportunities while still in office. To test this theory, I construct a new dataset that links over XXX corporate subsidy programs approved by multiple levels of governments with revolving-door officials who joined publicly listed Chinese firms between 2007 and 2019. I show that forward-looking officials provide sizable benefits favorable subsidies to their future employers. To verify the exchange of favors, I document that firms repay public officials who have provided favorable subsidies by hiring and paying them enormous amounts of cash compensation. Finally, I find that the reputation cost is the mechanism through which this quid pro quo relationship is sustained.