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A political foundation of public investment and welfare spending

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  • Anne Villamil
  • Xiaobing Wang
  • Ning Xue

Abstract

This paper develops a political economy model to examine the implications of political selection under an authoritarian regime. We formalize the fiscal policy choice of local governments, focusing on two political selection mechanisms and their implications for public investment and welfare spending. A growth‐oriented promotion system induces local officials to increase public investment, which may increase output but crowd out welfare transfers. This mimics the recent investment‐driven growth in China and relatively low effort to tackle high inequality. Under a broader incentive structure, we show that it is possible for an authoritarian regime to attain the social welfare of a democracy.

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  • Anne Villamil & Xiaobing Wang & Ning Xue, 2021. "A political foundation of public investment and welfare spending," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(4), pages 660-690, August.
    • Handle: RePEc:bla:jpbect:v:23:y:2021:i:4:p:660-690
    DOI: 10.1111/jpet.12519
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    Cited by:

    1. Nanak Kakwani & Xiaobing Wang & Ning Xue & Peng Zhan, 2022. "Growth and Common Prosperity in China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 30(1), pages 28-57, January.
    2. Cheng, Cheng & Wang, Xiaobing, 2021. "Transportation cost reducing technological change and wages inequalities," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 600-611.
    3. Jianyong Fan & Jian Huang & John G. Sessions & Jingjing Ye, 2023. "Local education expenditures and educational inequality in China," Manchester School, University of Manchester, vol. 91(4), pages 283-305, July.
    4. Dong, Zhiqiang & Wang, Xiaobing & Zhang, Tianhua & Zhong, Yuejun, 2022. "The effects of local government leadership turnover on entrepreneurial behavior," China Economic Review, Elsevier, vol. 71(C).
    5. Peter Rangazas & Xiaobing Wang & Yuxiang Zou, 2022. "China's efficient urban bias," Pacific Economic Review, Wiley Blackwell, vol. 27(3), pages 223-253, August.

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