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“Subsidies for Sale: Post-government Career Concerns, Revolving-Door Channels, and Public Resource Misallocation in China” by Zeren Li

August 18, 2021 @ 9:00 am 10:00 am JST

Registration required!

Author: Zeren Li (Duke).

Abstract: While the existing literature focuses on how revolving-door officials deliver favorable government treatment to firms after leaving public office, this paper theorizes that the post-government career concerns of public officials distort public resource allocation while still in office. To test this theory, I construct a new dataset that links over 98,000 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 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.

Discussants: TBD.

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